Asymmetric impact of shocks on Islamic stock indices: a cross country analysis

Empirical research exploring the relationship between capital markets and energy prices plays a crucial role in shaping policies for the growth of the Islamic financial system. This study aims to investigate potential shock transmission and volatility spillover effects among Islamic stock indices from selected Middle East and Northern Africa countries as well as crude oil prices and natural gas, over the period from August 2007 to September 2020. Applying VAR-BEKK-GARCH representation, the results reveal the evidence of bidirectional cross-market shock and volatility spillover effects between Kuwait and Qatar Islamic stock indexes, crude oil prices, and natural gas. Moreover, the results indicate the existence of bidirectional/unidirectional shock and volatility spillovers between Islamic indexes and all other variables, meaning there are information flows between these variables in all four countries except Turkey. Regarding the results of volatility spillovers, there is no spillover effect between Turkey’s MSCI Islamic index and Brent crude oil. These findings bear significant implications for portfolio management, offering valuable insights to financial market participants for making improved portfolio allocation decisions. Also, comprehending the volatility transmission mechanism across these markets is vital to provide policymakers and regulatory authorities with insight into the impact of energy prices on Islamic stock markets.

The primary purpose of the study is to investigate the volatility spillovers from global economic policy uncertainty and macroeconomic factors to the Islamic stock market returns. The study focuses on the Islamic stock indices of emerging economies including Indonesia, Malaysia, and Turkey. The Macroeconomic factors are industrial production, consumer price index, exchange rate. EGARCH model is employed for investigation of volatility spillovers. The results show that the global economic policy uncertainty has a significant spillover effect only on the returns of Turkish Islamic stock index. Similarly, the shocks in macroeconomic factors have little influence on the volatility of Islamic indices returns. The volatility of Indonesian and the Turkish Islamic stock indices returns is not influenced from the fluctuations in macroeconomic factors. However, there is significant volatility spillover only from industrial production to the returns of Malaysian Islamic index. The results suggest that the Islamic stock markets are less likely to influence from the global economic policies and macroeconomic factors. The stability of Islamic stocks provide opportunity for diversification of portfolios, particularly in stressed market conditions. The major price factors of Islamic markets could be firms' specific factors or investors' behaviors. The findings are helpful for policy makers and investors in formulating policies and portfolios.

This study attempts to investigate the relationships at different timescales between the Dow Jones Islamic European stock return and select continental/global Islamic and conventional stock returns and LIBOR. Both discrete and continuous wavelet techniques are used to unveil timescale relationships. The relationships between different stock indices (Dow Jones Islamic Asia, Dow Jones Islamic US, Dow Jones Conventional US and Dow Jones Islamic World, LIBOR) show evidence of multi-scale tendency. Moreover, Islamic stock returns appear to be strongly correlated with LIBOR, especially during its abrupt change. Finally, the Dow Jones Islamic stock indices appear to be impacted by the financial crisis in terms of contagion in volatility with implications for portfolio diversification. The results are plausible and intuitive and have strong policy implications.

The nexus, downside risk and asset allocation between oil and Islamic stock markets: A cross-country analysis

Purpose This study aims to examine the spillover effects between cryptocurrencies, stablecoins and Islamic stock indices, focusing on their interactions during crises. Islamic stocks have historically been more resilient during crises due to their adherence to Shariah principles. Time-varying parameter vector autoregression (TVP –VAR) method will allow the study to look at the spillover over time. Design/methodology/approach Using the TVP–VAR model, the study analyzes daily return data from January 1, 2018 to September 30, 2024. The data includes Bitcoin (BTC), Ethereum (ETH), Tether (USDT) and large-, mid- and small-cap Islamic stock indices. Findings The findings reveal that cryptocurrencies such as BTC and ETH exert stronger spillover effects on Islamic stock indices compared to stablecoins like USDT). However, Islamic stocks remain largely insulated from crypto spillovers, with any spillovers predominantly flowing from stocks to cryptocurrencies. Large-cap Islamic stocks are more susceptible to cryptocurrency spillovers, whereas mid- and small-cap stocks tend to transmit more volatility to crypto assets. Crises amplify these effects, with COVID-19 causing a sharp but short-lived impact, while the 2022 crypto crash led to more prolonged and intense spillovers, particularly affecting large-cap stocks. Notably, stablecoins exhibited no measurable spillover effects on Islamic stocks during the 2022 crypto crash, reinforcing their role as stabilizers in volatile markets. This reinforces the role of stablecoins and Islamic stocks as a relatively stable investment during crypto-related crises. Practical implications The findings suggest that Islamic stock investors face lower exposure to cryptocurrency crisis volatility. Furthermore, stablecoins could be a valuable addition to Islamic investment portfolios. Originality/value This study expands the limited understanding of how stablecoins influence Islamic stock markets. It adds further depth by examining spillover effects across different market capitalizations.

This study empirically investigated volatility spill-over and financial contagion effect between conventional stocks and shariah compliant equities before and during covid-19 pandemic in Nigeria. Banking and insurance sectoral stocks indices were selected to represent conventional equities while Nigerian stock exchange lotus islamic index represent islamic stocks. Daily closing stock price data from 02-01-2018 to 26-02-2020 for pre-covid and 27-02-2020 to 31-12-2021 for pre-covid and during covid were considered. DCC-GARCH model (Dynamic conditional correlation- Generalized Autoregressive Conditional Heteroskedasticity Model) was deployed to examine the spill-over effect while t-test was applied to check the consistency of the DCC coefficient before and during the pandemic. The result of the multivariate GARCH show that both banking and insurance stocks have long run volatility spillover effect on lotus islamic index, the result also revealed no significant increase in conditional correlation during covid-19 pandemic which indicate absence of financial contagion from the conventional to islamic stocks. The results provide important information to researchers, investors, and policymakers

Purpose: The aim of this study is to investigate correlation and the spillover effect between the Islamic stock index in Indonesia and other Asian emerging markets including Malaysia, Thailand, India, China and Taiwan. Design/Methodology/Approach: The time series data used is from daily returns from May 13, 2011 to October 17, 2017 with 1395 observations. Using Pearson Correlation, the multivariate VAR model and the Granger Causality test, the study found low correlation across markets. Findings: The fluctuation of the Indonesian Islamic stock index is substantially dominated by local information and creates a spillover effect in all markets in Asia. It also reveals a bidirectional relationship between the Indonesian market and the Thailand, Indian and Taiwanese markets, but only a unidirectional relationship between Indonesian market and Malaysian and Chinese markets. Practical Implications: The research is able to examine the integration of conventional stock markets between Indonesian and Asian markets quite well to investigate the spillover effect in the region. Originality/Value: The Indonesian market creates an essentially dominant spillover effect on all Asian market investigated. Using Islamic stock market, this study complements studies conducted by other researchers.

This study aims to determine the effect of consumption beta on Islamic stock returns. The research model used Breeden's (1979) CCAPM model by adding macroeconomic variables as control variables in the first regression test. The sample selection used a purposive sampling technique and obtained 27 active Islamic stocks listed on the JII index during 2019. The data and information collected are historical data, namely the monthly closing price of the JII Islamic stock index, Gross Domestic Product Data, Inflation data and SBI interest rates. . The use of macroeconomic variable data is an effort to obtain a Goodness of fit model so that it is able to produce estimates in accordance with the actual value. The beta coefficient value obtained in the first test then carried out the second stage regression. The results prove that there is a negative influence between consumption beta on the average yield of Islamic JII stocks of 21.56%, with a consumption variable value of -0.046894 and a significant T value of 0.0147 <0.05. Thus, this research briefly proves that the CCAPM Breeden model (1979) applies to the JII Islamic stock index on the Indonesia Stock Exchange for the period 2019.

This study investigates how key macroeconomic variables influence the Islamic stock market in Indonesia through analysis of the Jakarta Islamic Index (JII). The research examines the impact of interest rates, inflation, exchange rates, and global gold prices on Islamic stock price movements, using monthly time series data from 2017 to 2021. The study employs multiple linear regression analysis with classical assumption tests to analyze the relationships between these variables. The findings reveal that interest rates have a significant positive effect on Islamic stock prices, while exchange rates demonstrate a significant negative impact. Inflation shows a negative but insignificant influence, and global gold prices exhibit a negative but statistically insignificant effect on the Islamic stock index. The model explains 69.8% of the variance in Islamic stock prices, indicating the substantial role of macroeconomic factors in determining Islamic stock market performance. These results provide valuable insights for investors, policymakers, and market participants in understanding the dynamics of Islamic stock markets and their relationship with broader economic conditions. The study contributes to the growing literature on Islamic finance by demonstrating how Sharia-compliant investments respond to various macroeconomic factors, offering practical implications for investment strategies and market regulation.

This study aims to investigate the dynamic conditional correlation and volatility spillover between the conventional and Islamic stock markets in developed and emerging countries in order to develop better portfolio and asset allocation strategies. We used both multivariate GARCH (MGARCH) and multi-scales-based maximal overlap discrete wavelet transform (MODWT) approaches to investigate dynamic conditional correlation and volatility spillover between conventional and Islamic stock markets in developed and emerging countries. The results show that conventional and Islamic markets move together in the long run for a specific time horizon and present time-varying volatility and dynamic conditional correlation, while volatility movement changes due to financial catastrophes and market conditions. Further, the findings point out that Chinese conventional and Islamic stock indexes showed higher volatility, whereas Malaysian conventional and Islamic stock indexes showed comparatively lower volatility during the global financial crisis. This study provides fresh insights and practical implications for risk management, asset allocation, and portfolio diversification strategies that evaluate stock market reactions to the crisis in the international avenues of finance literature.

Impact of COVID-19 pandemic on stock markets: Conventional vs. Islamic indices using wavelet-based multi-timescales analysis

This paper examines the relationship between 10 Global sectoral conventional and Islamic assets. For each sector, a conventional, an Islamic stock index and a bond are retained. The analyzed relations are done by taking into account diverse investment horizons by using MODWT and GARCH-DCC-type models. Our results indicate that adding bond indexes into a portfolio composed with conventional stock or Islamic stock is efficient. As for the correlations between conventional and Islamic sectoral indexes, they depend on the sector. Relations between returns of securities are quite similar to the relations between high-frequency part of these series and are very volatile at low frequency.

PurposeThe purpose of this paper is to explore the extent to which macroeconomic variables affect the Islamic stock market behavior in Malaysia in the post 1997 financial crisis period.Design/methodology/approachThe paper employs the latest estimation technique of autoregressive distributed lag (ARDL) model approach to cointegration.FindingsThe results suggest that real effective exchange rate, money supply M3, treasury bill rate (TBR) and federal fund rate (FFR) seem to be suitable targets for the government to focus on, in order to stabilize the Islamic stock market and to encourage more capital flows into the market. As for the interest rates and stock returns relationship, the paper finds that when interest rates rise either domestically (TBR) or internationally (FFR), the Muslim investors will buy more Shari'ah compliant stocks; thereby escalating the Islamic stock prices.Research limitations/implicationsThe results of this study are limited to the post 1997 financial crisis period until the beginning of the year 2006 for a small open economy, Malaysia.Practical implicationsThe paper reveals that both changes in the local monetary policy variables and in the US monetary policy as measured by the changes in the FFR have a significant direct impact on the Islamic stock market behavior in Malaysia.Originality/valueThe paper adopts the latest time series econometrics technique to test for cointegration, ARDL. And it is among the earliest attempts to investigate the long‐run effects of the macroeconomic variables changes either domestically or internationally on the Islamic stock market.

Volatility spillover and hedging effectiveness among China and emerging Asian Islamic equity indexes

The aftermath of the COVID-19 pandemic is not limited to human lives and health sectors. It has also changed social and economic aspects of the world. This study investigated the Islamic stock market’s reaction and changes in volatility before and during this pandemic. The market model of event study methodology was employed to analyze Islamic stock market reactions in nine different markets around the globe. To examine changes in volatility and persistence of risk, the generalized autoregressive conditional heteroscedasticity (GARCH) method was used. Nine Islamic stock indices were selected for this study from the Thomson Reuters data stream. The results suggest that, in the short run, the Islamic Australian stock index and Islamic GCC stock index remained stable for the first 15 days following news of the pandemic. The Islamic stock indexes of Qatar, UAE, ASEAN, MENA, MENASA, and Bahrain were significantly affected by the outbreak in the short-term. On the other hand, the volatility of Islamic stock indices was substantially amplified after the global health crisis was declared by the WHO. Moreover, volatility shocks tended to persist for a longer period after COVID-19.