Interaction between precious metals price and Islamic stock markets

Abstract

Purpose This study aims to analyze the presence of a long-term relationship between precious metal prices, such as for gold, silver, platinum and palladium, and Islamic stock markets of 32 different countries – 21 developed and 11 developing. In this study, the long-term relationship between the precious metal prices and the Islamic stock markets of countries grouped by the Morgan Stanley Capital Index (MSCI) according to their level of development was examined. In the economies included in the study, it is necessary that the Islamic stock index be created by MSCI. It is not a constraint as a Muslim country. Design/methodology/approach This study used the Pedroni panel cointegration analysis and full modified ordinary least square method. All analyses in this study were performed using monthly data from 2002 to 2015. Findings According to the Pedroni panel cointegration analysis applied in this study, all four precious metals – gold, silver, platinum and palladium – are effective portfolio diversification tools for developed Islamic stock markets within the analyzed period. However, in developing countries, although gold and palladium are effective portfolio diversification tools, silver and platinum are not. Practical implications These results provide practical implications for academicians, practitioners as portfolio managers, policymakers. These implications are related in portfolio risk management, the diversification benefits and to propose new investment tools among developed and developing Islamic markets. Social implications This study is important for investors who assemble portfolios under the restriction of selecting investment tools suitable for Islamic rules. These investors are important in terms of using precious metals that they prefer as an alternative to stock markets to protect against the risks related to their suitable portfolio options. Governments, individuals and institutional investors that use capital stock according to Islamic rules in developed countries can effectively use gold, silver, platinum and palladium as hedging tools. However, this choice is limited to only gold and palladium in developing country markets. Gold continues to be an effective diversification tool in Islamic share markets, as in traditional stock markets. Originality/value The author would like to emphasize that this article is second to examine precious metals and Islamic stock markets in literature.

The correlation of gold, exchange rate, and stock market on Covid-19 pandemic period

“…By contrast, Kumar (2014) pointed out that there are variative, positive, even negative dynamic correlations between stock and gold in the crisis period in India so that gold becomes a good portfolio diversification in India. Chkili (2016) and Tuna (2019) asserted that there is a low negative correlation between the stock market and gold so that gold can become a safe haven and effective portfolio diversification when there is an extreme stock movement on a crisis period. The result is in line with Choudhry et al (2015) the disappearance of gold as a safe haven during the global economic crisis makes gold is not worth it to minimize the risk of the portfolio during the crisis period.…”

“…Gold is one of the precious metals that considered as a safe asset to be stored in the long-run period because it has good durability (Robiyanto, Wahyudi, & Pangestuti, 2017). It also can be an effective diversification tool within the portfolio to reduce the risks (Tuna, 2019).…”

“…Furthermore, Billah & Hartomo (2018) stated that the dynamic correlation of gold prices and the sharia stocks in Indonesia shows that there is a negative correlation between gold prices and sharia stocks. Hence, Tuna (2019) also investigated the correlation between precious metals and the sharia stocks market using the Pedroni Panel Cointegration Analysis method which found a relationship between the gold precious metals and the sharia stocks market. Moreover, by using the Panel Vector Autoregression method, Padungsaksawasdi (2019) discovered the relationship of gold and stock prices which was demonstrated through the relationship between gold market investor sentiment and stock price investor sentiment.…”

How oil prices, gold prices, uncertainty and risk impact Islamic and conventional stocks? Empirical evidence from QARDL technique

“…Maghyereh et al ( 2019) have studied the correlations of Islamic securities with gold, and their results suggested relatively lower correlations, which means gold is a good tool for diversification for Islamic securities. Tuna (2019) has concluded that gold persists to be an effective diversification tool in both Islamic share markets, as well as in traditional stock markets. Beckmann et al (2015) adopted a novel approach to conduct their research; they included statistics from 18 countries and 5 regional indices.…”

Gold-oil-exchange rate volatility, Bombay stock exchange and global financial contagion 2008: Application of NARDL model with dynamic multipliers for evidences beyond symmetry

“…In the existing literature, some of the researchers have utilized only gold prices (Arfaoui & Ben Rejeb, 2017;Shakil et al, 2018;Tuna, 2018) and others have utilized only oil prices (Lardic & Mignon, 2008;Sahu et al, 2014;Mollick & Nguyen, 2015;Wen et al, 2017;Abdel-Latif et al, 2018;Areli Bermudez Delgado et al, 2018;Pandey & Vipul, 2018;Kumar, 2019;A. Mouna, 2019;Narayan, 2019;Charfeddine & Barkat, 2020) in order to examine their linkages with stock market indexes.…”