The linkages between oil market uncertainty and Islamic stock markets: Evidence from quantile-on-quantile approach

Abstract

Abstract In recent years, Islamic finance has become increasingly influential, especially Islamic stocks, which have created huge investment attractiveness. At the same time, the financialization of oil has made the international oil market increasingly uncertain and more likely to affect other markets. To effectively understand the correlation between the two markets, we empirically analyze the cases of four typical countries from the perspective of oil market uncertainty. This paper utilizes OVX as an accurate measure of oil market uncertainty and applies quantile-on-quantile approach to detect the asymmetric and heterogeneous relations between the variables. Our results show overall negative linkages between OVX changes and Islamic stock returns, and there is indeed asymmetry. Namely, the effects of oil market uncertainty will be more pronounced when it is at higher quantiles. Further comparing the results of the selected four countries, we find some heterogeneities. Oil-importing countries are more sensitive than oil-exporting countries, and Islamic countries are more sensitive than non-Islamic countries. The findings of this article about the linkages between oil market uncertainty and Islamic stock markets is meaningful to the research and financial practice in related fields.