Spillovers and the determinants in Islamic equity markets

Abstract

We investigate pair-wise, net and total return and volatility spillovers across 15 Islamic equity markets from widely dispersed locations. Using the generalized VAR-based spillovers index between 2007 and 2017, we find increasing interactions in return and volatility spillovers while the extent of spillovers has been asymmetric across the countries. Interestingly, we find the presence of persistent clustering of spillovers (viz., Qatar - UAE - Saudi Arabia and Turkey - Malaysia - Indonesia). These clustered countries lead Islamic equity return and volatility spillovers in their respective regions. We do not find any supremacy of the cash and oil-rich GCC countries outside their region. Our results also highlight that in crises periods, aggregate spillovers across the Islamic equity markets intensify. Additionally, we employ cross-section analyses to investigate the underlying macroeconomic variables influencing the magnitude of such spillovers. We find convincing evidence of geographic proximity along with economic and financial linkages that explain the directions of return and volatility spillovers.