Price discovery and regime shift behavior in the relationship between sharia stocks and sukuk: A two-state Markov switching analysis

Aloui, Chaker; Hammoudeh, Shawkat; Hamida, Hela Ben

doi:10.1016/j.pacfin.2015.06.004

Cited by 39 publications

(29 citation statements)

References 53 publications

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“…Two conflicting hypotheses are branded in Islamic finance literature. The first hypothesis supports the theoretical argument regarding the relationship between conventional bonds and Islamic stocks (Aloui et al 2015b). No doubt, the issuance of sukuk is based on Islamic principles.…”

Section: Theoretical Literaturesupporting

confidence: 74%

“…However, it is necessary to distinguish between short-and long-term investments in co-movement analysis because both these investments have different objectives. This aspect becomes more important when we are dealing with foreign investors who want to diversify away risk, derive high returns from their international investment portfolios, and work under different time horizons (Aloui et al 2015b). Candelon et al (2008) argued that from a portfolio management perspective, the objective of short-term investment is to observe co-movement of stock returns at higher frequencies, while the long-term investment's major concern is to observe the relationship at higher frequencies.…”

Section: Introductionmentioning

confidence: 99%

“…Thirdly, the study offered different interpretations of investment behavior for the policy makers to help in decision making. In previous literature, researchers have applied linear and nonlinear time-series econometric methodologies, including ARCH and GARCH class models (Aloui et al 2015a), switching regime models (Aloui et al 2015b), and copula methods (Naifar et al 2016), to estimate the relevant information. Recently, wavelet techniques have revealed their ability to overcome the leading shortages of traditional time-series models, and from a financial perspective, they help in distinguishing between short-and long-run investors' behaviors, which is more appropriate in the co-movement analysis between shariah stock and sukuk bonds.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

Nasreen

Naqvi

Tiwari

et al. 2020

JRFM

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Investors are interested in knowing whether sukuk bonds and shariah stock indices in the Gulf Corporation Council (GCC) region are related. This study examines the connectedness between the sukuk- and shariah-compliant stock indices in the GCC financial markets. Bivariate and multivariate wavelet approaches are applied to the daily data covering the period 10 July 2008 to 15 May 2017. The empirical findings demonstrate a strong correlation between these GCC sukuk bond indices and shariah stock indices. The degree of connectedness between these sukuk and shariah stock indices varies across time and scale. A strong and positive association is observed in the short term and a negative association is evident in the long term. The same findings are observed, using the wavelet cohesion approach that also validates the existence of portfolio diversification opportunities at a short-time horizon. The multivariate cross-correlation analysis reveals that these sukuk and shariah stock markets are highly integrated across time and scale. Furthermore, the value at risk (VaR) for the sukuk bond–shariah stocks portfolio is performed to highlight the significance of the wavelet analysis. The outcomes show that portfolio stocks are variable with respect to time or scale (time diversification). Overall, analyzing the sukuk bond–shariah stock index returns in the GCC at a multiscale level makes it easier for financial agents dealing with heterogeneous trading horizons to assess the benefits of diversifications.

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Section: Theoretical Literaturesupporting

confidence: 74%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

Nasreen

Naqvi

Tiwari

et al. 2020

JRFM

Self Cite

View full text Add to dashboard Cite

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“…Charfeddine and Ajmi (2013) used regime switching to capture long memory effects on market returns on the Tunisia Stock Exchange. Still, Aloui, Hammoudeh & Hamida (2015) adopted a regime switching approach to investigate the relationship between Sharia stocks and sukuk. For much of the frontier markets south of the Sahara, our search of the literature on Google Scholar did not reveal any such papers.…”

Section: Introductionmentioning

confidence: 99%

Volatility Model Choice for Sub-Saharan Frontier Equity Markets - A Markov Regime Switching Bayesian Approach

Korkpoe

Howard

2019

emaj

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We adopt a granular approach to estimating the risk of equity returns in sub-Saharan African frontier equity markets under the assumption that, returns are influenced by developments in the underlying economy. Four countries were studied -Botswana, Ghana, Kenya and Nigeria. We found heterogeneity in the evolution of volatility across these markets and also that two-regime switching volatility models describe better the heteroscedastic returns generating processes in these markets using the deviance information criteria. We backtest the results to assess whether the models are a good fit for the data. We concluded that, the selected models are the most suitable for predicting the volatility of future returns in the markets studied.

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“…For instance, wavelet techniques of analysis revealed that the Sukuk market has higher quality and less risk during the financial crisis, with the Dubai financial market being the top index in the GCC countries (El Alaoui et al, 2015). Furthermore, using the Markov switching analysis, Aloui et al (2015c) found two-state specification within the GCC market of Sharia-compliant stock and Sukuk; the "bear state" (i.e. turbulent period) with high volatility regime with negative returns and "the bull state" (i.e.…”

Section: Islamic Sukukmentioning

confidence: 99%

A Review of Islamic Investment Literature

Hassan

Aliyu

Paltrinieri

et al. 2018

J of App Econs and Policy

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This paper reviews the empirical literature on the contemporary issues of Islamic investments and highlights the future research directions. The growing literature during the last several years and the penetration of Islamic investments beyond the Muslim majority countries motivate us to review the empirical studies in the area. We therefore focus our literature review on mutual funds, sukuk and equity investments, analysing 81 articles from the most important journals dealing with the topic. The mixed findings in this area help the understanding of professionals not familiar with Islamic investment to identify the trends of the literature for important decisions. Our results have also important financial implications for asset managers willing to include Islamic financial instruments into a well-diversified portfolio.

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Price discovery and regime shift behavior in the relationship between sharia stocks and sukuk: A two-state Markov switching analysis

Cited by 39 publications

References 53 publications

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

Volatility Model Choice for Sub-Saharan Frontier Equity Markets - A Markov Regime Switching Bayesian Approach

A Review of Islamic Investment Literature

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