The effect of conflict on Palestine, Israel, and Jordan stock markets

Abstract This research studies how the Israeli-Palestinian conflict affects Palestine, Israel and Jordan stock markets, as well as the links between these markets on a daily basis. A violence index is built and used as an exogenous variable in a VECM-MGARCH model. Our findings suggest the existence of an equilibrium relationship between the three markets, which is essentially kept through Palestinian and Jordanian stock market adjustments and that does not respond to increases in violence. An increase in violence has short-run direct negative impacts on the Palestinian stock exchange, but does not directly influence the Israeli and Jordanian stock markets.