Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis

Asymmetric Return and Volatility Transmission in Conventional and Islamic Equities

“…In particular, Saadaoui and Boujelbene [14] investigate the transmission of volatility between the Dow Jones stock index and the Dow Jones emerging Islamic stock index using vicariate BEKK-GARCH and DCC-GARCH model and find no evidence of a shock spillover effect between them. Assessing the co-movements among Islamic equity markets versus their conventional counterparts across different regions (Asia-Pacific, USA, Eurozone and United Kingdom), Dewandaru et al [5] find incomplete market integration, with Islamic markets demonstrating a higher fundamental integration. Using Engle and Granger's cointegration technique, El Khamlichi et al [15] explore the ethical equities potential for diversification in comparison to their conventional counterparts and find an absence of cointegration among two index families (Dow Jones and Standard & Poor's), therefore indicating diversification opportunities for these indices.…”

“…From a strategic investment perspective, investors can maintain a balanced investment portfolio with a strategic asset allocation to Islamic equity as it can ensure a sustainable stream of returns along with a controlled degree of risk across markets [5]. For policy makers, the empirical evidence on volatility spillovers can be a useful ingredient in formulating policies for market stability.…”

“…Therefore, the extent to which Islamic assets can be regarded as a safe investment option during times of financial crisis can be questioned and can hold important implications for investors who aim to benefit through portfolio diversification. It is important to note that Islamic investors must be cautious of structural shocks (such as those ingrained in trade linkages), as these may adversely affect returns [5]. Notably, investors can receive higher short-term diversification benefits from investing in a mix of EU and U.K. as well as developed and emerging markets [5].…”

“…It is important to note that Islamic investors must be cautious of structural shocks (such as those ingrained in trade linkages), as these may adversely affect returns [5]. Notably, investors can receive higher short-term diversification benefits from investing in a mix of EU and U.K. as well as developed and emerging markets [5].…”

“…The bulk of the existing literature is focused on the comparative performance of Islamic and conventional financial assets [1][2][3][4][5][6][7][8] The issue of potential risk transmission between Islamic and conventional financial assets is relatively less explored. This paper contributes toward this strand of literature by analysing the risk transmission mechanism between Islamic and conventional equities.…”