How Global Financial Shocks Reach the Moroccan Stock Market: Evidence from Panel ARDL-PMG (2010-2025)

Abstract

What drives financial stress in a small open economy that has spent the past decade opening its capital markets to the world? This paper takes up that question for Morocco, examining how disturbances originating in global financial centres reach the Casablanca stock exchange (MASI) and whether the structural reforms of 2016-2017 changed the nature of that exposure. Drawing on monthly data for six countries over the period February 2010 to October 2025, we estimate a Panel ARDL-PMG model that separates the lasting, equilibrium-level effects of external shocks from their immediate, often exaggerated, market impact. Three sets of findings stand out. First, it is purely financial variables rather than real-economy indicators that dominate stress transmission: the CBOE Volatility Index (VIX) carries a long-run elasticity of 61.6, while crude oil prices prove statistically inconsequential despite Morocco importing nearly all of its energy. Second, every key variable exhibits a sign reversal between the short and long run, revealing that markets overshoot violently on impact before gradually correcting, a pattern consistent with behavioral finance theories of panic followed by partial recovery. Third, MENA emerging markets in our sample lack a functioning error-correction mechanism, meaning that shocks do not fade naturally as they do in the developed-economy subgroup whose equilibrium half-life is only 3.8 months. These results carry direct implications for macroprudential regulation, capital-market deepening, and portfolio risk management in countries navigating the uncertain passage from a fixed exchange rate to a managed float.