Co-Movement and Performance Comparison of Conventional and Islamic Stock Indices during the Pre- and Post-COVID-19 Pandemic Era

Abstract

This study conducts a comparative analysis of the performance of Islamic and conventional indices in both developed and developing countries and territories, considering the pre- and post-COVID-19 pandemic periods. The research employs performance index tools and time–frequency wavelet-based analysis to assess how the COVID-19 pandemic affected the performance, volatility, and co-movement of Islamic and conventional stock indices. The findings reveal that Islamic stock indices are more resilient and tend to outperform conventional stocks during crisis periods in both developed and developing countries and territories, and this trend holds true in the long and short term across most countries. The analysis of wavelet coherence indicates a strong co-movement and coherence between Islamic and conventional indices. Furthermore, the study reveals that in developing countries and territories, the co-movement is characterized by weak coherence and high volatility compared to developed countries and territories. The study highlights the significance of Islamic indices as safe havens for investors during times of crisis, suggesting that including Islamic equities in investment portfolios can potentially yield higher returns compared to conventional indices. This research holds practical value for individual traders involved in the online trading of global stock indices, aiding them in constructing and designing internationally diversified portfolios. Unlike previous studies that focused on specific countries and territories and indices, this study offers a comprehensive examination of the behavior of Islamic and conventional indices across major global markets during both crisis and noncrisis periods. The results contribute significantly to the existing literature and offer valuable insights for investors.