Abstract
PurposeThe purpose of the study is to measure cross-country stock market correlation and volatility transmission during the global coronavirus disease 2019 (COVID-19) pandemic. The paper traces trajectory of Islamic equity investments in order to get insights on the behavior of the markets during the crisis.Design/methodology/approachThe paper uses generalized method of moments (GMM), autoregressive distributed lag (ARDL) and multivariate GARCH (MGARCH) models for analysis of dynamic causality, stock market cointegration, correlation and volatility transmission between Islamic stock indices.FindingsThe result of normal correlation analysis on the share indices show the markets move together. The result of ARDL cointegration test shows the markets returns are cointegrated as a group. To further make sense of the data; the indices were grouped into four different categories, then cointegration tests were conducted. The results of the analysis show that the subgroups are cointegrated except the low COVID-19 subgroup. Based on MGARCH findings, the possibility of volatility transmission between markets during the crisis is high. The market returns indices show the usual herd mentality common during the period of crisis.Originality/valueUnlike other works in this area, this paper attempt to trace the trajectory of Islamic equity investment in order to get relevant insights and arrives at appropriate ways of responding to the crisis.
Highlights
The recent devastating impacts of coronavirus disease 2019 (COVID-19) on humans and their environment have been felt worldwide irrespective of the sector
The findings show that Islamic indices were more connected to the real sector because of the focus of Islamic finance on the real economy
The generalized method of moments (GMM) dynamic analysis shows that the Pakistan index was caused by Nigeria, Malaysia, Japan, Europe and Canada markets
Summary
The recent devastating impacts of coronavirus disease 2019 (COVID-19) on humans and their environment have been felt worldwide irrespective of the sector. The COVID-19 pandemic has affected the economy, politics, social interactions, religious rites and, above all, health. The COVID-19 impact has been categorized by many analysts as more devastating to the world economy than the last Great Recession of 2008/9. At the economic and finance levels, the equity markets have been seriously affected like all previous crises of this magnitude; the appropriate word to describe the situation is devastation. Like the COVID-19 pandemic itself, the financial contagion caused by it has spread from one corner of the world to another, affecting the global equity market. Several empirical works have assessed the nature and impact of the crisis on the global equity markets. Just like its conventional counterpart, the Islamic financial industry is affected by this crisis.
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