A stock market performs a number of important roles in the economy. As a financial intermediary, it enables firms to raise capital. In developing countries implementing privatization, share issues in domestic and international markets, has been the second most commonly used method after direct sales. A stock market also helps promote growth and employment by providing finance to businesses, which would have had difficulty raising funds otherwise. From the investorsâ?? perspective, a stock market provided them with an opportunity to diversify their portfolio of assets and thus reduce their risk. A stock market is also important in that it performs both a screening and a monitoring role. Any new information on a listed company will be quickly discounted into the stock price, which may indicate profitable investment opportunities. Stock price changes also assist in monitoring the performance of managers of companies listed on a stock market.

Traditionally, studies on stock markets have focused on developed markets. The issue most often tackled in these studies has been that of the efficient market hypothesis (EMH), which is the idea that prices of securities quickly and fully reflect all available information. This issue is of primary importance to investors because if a market is characterized as efficient, the likelihood is that no investor can earn abnormal returns.

Over the last decade, researchers have given a growing attention to the emerging markets, which have seen their share of world markets increase noticeably. While the issue of efficiency remains dominant in the studies on these markets, that of their integration is also attracting great interest. This issue involves the idea that if a market is not integrated in international markets, there are diversification opportunities for investors.

Regarding Arab stock markets, there is still a significant lack of studies on issues relevant to the investment decision. This may be due to the fact that some of these markets are not yet fully accessible to international investors and/or that detailed information is not yet available to the level researchers and investors are accustomed to in other markets. Whatever the obstacles to research on Arab stock markets may be, much can still be done under the current circumstances.

From this perspective, the Arab Planning Institute, Kuwait, undertook a research project on Arab stock markets to partially fill this void and modestly contribute to a better understanding of these markets. The main objectives set for this project were essentially the following: to assess the importance and the role of these markets in their respective economies; to analyze their legal and institutional framework; to describe their structure and mechanism; to identify potential constraints and obstacles to their growth; to determine their importance relative to international markets in terms of size; and finally to evaluate their performance and thereby underline any shortcomings which may help both policymakers and participants in ensuring a more efficient operation of these markets.

This book is the outcome of the research project. It includes a total of six papers: five country-specific and examining several issues and one covering a group of Arab markets and focusing on the issue of volatility. The following is a summary of these papers.
The Mohieldin and Sourial paper focuses on the Egyptian securities market. The authors first discuss the institutional development of the market since its establishment in 1888 until 1998. They divide this period into four phases, and examine the impact of institutional changes within each one and on market growth. Then, they analyze the behavior of stock returns in the Egyptian market over the period 1993-1998. They find that the random walk hypothesis conditions are not satisfied for the Egyptian market, and mention a number of factors that could justify this outcome.The paper by Alzoubi discusses the main aspects of the Amman financial market. After providing a background on the Jordanian financial system in general and the Amman financial market in particular, the author presents the market structure and its operating procedures. Next, he examines the market performance and the impact of economic reforms on its development. Finally, the author highlights recent measures introduced by Jordanian authorities in the context of reform of the financial system.

Al-Loughaniâ??s paper focuses on the Kuwait stock exchange. It is divided into two sections. In the first, the author provides a background on the market and reviews the main institutional and legislative reforms introduced, particularly over the last two decades. In the second section, he tests the weak form of the efficient market hypothesis over the period 1993-1997. Based on the results, the author concludes that the Kuwaiti market is not efficient.

In his paper, Hussein examines the case of the Muscat security market. After providing a historical brief on the market, the author discusses its legal and institutional framework as well as its operating procedures. Then, he reviews several market-related issues such as economic reforms, forms of foreign participation and transparency and disclosure of information. In the last part of the paper, the author examines the performance of the market using some indicators, which he then compares with those of other developing and developed markets. He finds that the Muscat market had the best performance in 1997 but was significantly affected in 1998 by the sharp decrease in world oil prices.
The paper by Bouri focuses on the Tunis stock market and examines its stochastic properties. The author starts by providing a historical brief on the market since its establishment in 1969. He notes that the market performance improved significantly between 1990 and 1995, but this trend reversed over 1996 and 1997. Then, he investigates the behavior of returns on the Tunis market. Using several tests, the author concludes that the Tunis stock market is weakly efficient.

Finally, the paper by Dahel investigates whether Arab stock markets are characterized by excessive volatility of returns. To this end, the paper includes, in addition to eight Arab stock markets, two emerging and three developed markets. The author uses two measures of volatility, the coefficient of variation and the Schwert measure. The latter is used at the group level so that it could reveal not only the potential trends in volatility of returns in Arab markets but also their level of volatility relative to that of emerging and developed markets. The author finds that Arab markets exhibit the lowest level of volatility of returns and that they are not affected by international financial crises.

I believe that the papers in this book have contributed to a better understanding of Arab stock markets and have paved the way for further research on the subject, which could greatly benefit Arab economies.