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This study investigates the dynamic interactions between macroeconomic indicators, financial depth, and bank-specific variables on stock market efficiency and banking stability across 21 MENA countries from 2003 to 2021. Using fixed-effects regression and a Panel Vector Autoregression (PVAR) framework, the research captures cross-country heterogeneity and systemic interdependencies within the region's financial sector.

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Abstract

Stock market efficiency plays a vital role in financial economics, as it reflects how quickly and accurately asset prices incorporate available information. This study investigates stock market efficiency and banking sector stability in the MENA region, focusing on the dynamic interactions between macroeconomic indicators, financial depth, and bank-specific variables. Using panel data from 21 countries over the period 2003–2021, the analysis employs both fixed-effects regression and a Panel Vector Autoregression (PVAR) framework to capture cross-country heterogeneity, temporal dynamics, and systemic interdependencies. The findings reveal that traditional macroeconomic variables, including inflation, GDP per capita, and domestic credit to the private sector, exert limited direct influence on banking sector stability as measured by the Z-score. Instead, the results highlight the importance of country-specific characteristics, institutional quality, and regulatory frameworks in shaping financial resilience across MENA countries. Overall, the findings confirm that effective risk management plays a central role in strengthening bank stability. By enhancing financial resilience, improving operational discipline, and reducing vulnerability to economic and financial shocks, sound risk management practices support the ability of banks to maintain consistent performance over time. The results further suggest that stability is not solely driven by internal mechanisms but also depends on the broader economic and institutional environment in which banks operate. Together, these elements reinforce the capacity of banking systems to contribute to long-term financial stability in the region.

Key findings

  • Traditional macroeconomic variables like inflation, GDP per capita, and domestic credit have limited direct influence on banking sector stability as measured by the Z-score.
  • Country-specific characteristics, institutional quality, and regulatory frameworks are more critical in shaping financial resilience than standard macroeconomic indicators.
  • Effective risk management plays a central role in strengthening bank stability and enhancing overall financial resilience.

Keywords

Panel dataFinancial systemPsychological resilienceMonetary economicsFinancial sector developmentFinancial market

Identifiers

DOI
10.3390/jrfm19020162
Journal
Journal of Risk and Financial Management
Year
2026