Islamic finance industry has witnessed an incredible expansion in the last two decades, especially in Southeast Asia, Middle East, Europe, and the United States. According to the latest estimates, the size of the global Islamic finance industry has been growing at a rate of 6% annually and was estimated at $2.4 trillion at the end of 2017. The major asset allocations comprised 75% equities, 17% money market funds, 6% mixed assets, and 2% insurance during the same year. The industry is projected to reach $3.8 trillion by the year 2023. 1 The objective of this study is to estimate Value-at-Risk (VaR) forecasts using various time-varying volatility models to find a model that accurately predicts the downside risk for the non-conventional (i.e., Islamic) equity markets.In this study, a popular Shariah-compliant equity index, the Dow Jones Islamic Equity Market Index (DJIM), is used to represent the Islamic equity markets. This index consists of stocks of corporations located in Muslim as well as non-Muslim countries and is regulated by the Shariah Supervisory Board which is an independent regulatory body. The DJIM index was created in 1999 and the current regional distribution of firms is classified as follows: 64.8% in North America, 23.3% in Asia/Pacific, and 11.9% in Europe and South Africa. Moreover, technology (32.3%), health care (17.6%), industrial (14.7%), consumer goods (12.6%), and consumer services (7.9%) are reported as the top five sectors in the DJIM index. 2 Justification for selecting the DJIM index to represent the Islamic equity market can be drawn from the findings of Albaity and Ahmad (2011). The authors examine similarities among Dow Jones Islamic Market Index (DJIM), Financial Times Stock Exchange Global Islamic index (FTSEGII), and Kuala Lumpur Syariah Index (KLSI). They find no significant differences in returns and risk premia of these indices which in turn supports the idea that DJIM index is an appropriate representative of Islamic equity markets. Although the Islamic market serves as a counterpart for the conventional market, recent studies show a strong causal relationship, dynamic dependencies, and risk spillover between Islamic stock market indices, energy commodities, and conventional financial systems (Ajmi et al., 2014;Hammoudeh et al., 2014;Shahzad et al., 2018). This implies that similar to conventional market indices and energy commodities, the DJIM index is also prone to market fluctuations and crises. Academic literature is rich with several studies that estimate VaR

This paper examines the effect of capital account liberalization on the frequency of stock market crashes. We use de jure and de facto measures of capital account liberalization and employ a negative binomial random effect model to analyse the relationship. Using a sample of 65 countries for 1973–2016, we show that with restricted capital account liberalization, an increase in capital flows leads to a decrease in stock market crashes. With a more liberalized capital account convertibility, higher capital flows lead to a rise in stock market crashes. The main key finding supports the notion that free and unregulated capital flows induce more volatility in the stock market, and crashes in these markets are more likely to happen. These results are also robust to different sub‐samples comprising of high‐income OECD countries and non‐OECD countries. Our results are also robust to change in the specification of stock market crashes and changes in capital flows' specification.

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