Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets

Anas, Muhammad; Mujtaba, Ghulam; Nayyar, Sadaf; Ashfaq, Saira

doi:10.3390/jrfm13070156

Cited by 13 publications

(5 citation statements)

References 55 publications

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“…Wavelets are a multi-solution-based powerful and dynamic approach that enable efforts to overcome the barriers of time-series parametric-based estimation under the Capital Asset Price Model's (CAPM) guidelines. Moreover, it explains the decoupling hypothesis and heterogeneity of asset returns by observing different risk patterns between conventional and Islamic stock markets (Anas et al 2020;Sharif et al 2020).…”

Section: Introductionmentioning

confidence: 91%

Co-Movement, Portfolio Diversification, Investors’ Behavior and Psychology: Evidence from Developed and Emerging Countries’ Stock Markets

Sahabuddin

Islam

Tabash

et al. 2022

JRFM

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The issue of co-movements is still crucial and arguable in international finance. An optimum and significant level of co-movement is highly desirable to investors, and it mostly depends on investors’ decisions (behavior and psychology). We use frequency–time bands and multi-scale-based wavelet analysis to investigate the co-movement between developed and emerging countries’ stock markets for better asset allocation and portfolio diversification strategies. The results show that a significant level of co-movement is observed between conventional and Islamic stock markets in developed and emerging countries, and it varies in terms of its time–frequency domain properties. Particularly, the dependency among conventional and Islamic stock markets is strong at 4–512-band scales. However, the USA Islamic stock market illustrates a higher level of coherency with the UK, Japan and China’s Islamic stock markets, while a relatively lower level of co-movement is detected with the Chinese composite, Malaysian and Indonesian Islamic stock markets. The findings further confirm that the developed countries’ stock markets are substantially influenced by the GFC in 2007–2008 and the European debt crisis in 2012, while this trend is surprisingly not observed in the emerging markets on a similar scale. Therefore, these crises have opened the door for the grabbing of portfolio diversification benefits from the emerging countries’ stock markets. These findings give some interesting insights to policymakers, investors and fund managers for portfolio diversification and risk management strategies.

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Section: Introductionmentioning

confidence: 91%

Co-Movement, Portfolio Diversification, Investors’ Behavior and Psychology: Evidence from Developed and Emerging Countries’ Stock Markets

Sahabuddin

Islam

Tabash

et al. 2022

JRFM

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show abstract

“…Ahmed (2019) finds that Islamic–conventional couples are susceptible to the US economic policy uncertainty and reject the dichotomous distinction between these stock markets for all regions. Anas et al (2020) examine the decoupling and the dependence between developed and emerging Islamic and traditional market indices. Their results suggest that the decoupling hypothesis was largely rejected for all regions.…”

Section: Literature Reviewmentioning

confidence: 99%

Asymmetric dependence structures and decoupling hypothesis: Islamic versus conventional equity indices with copula approach

Houidi

Ellouze

2022

IMEFM

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Purpose The purpose of this paper is to examine the dependence structure between the US conventional stock market and each Islamic and conventional stock market provided by the Dow Jones index, namely, for the UK, Canada, Europe, the emerging countries and Asia-Pacific. This paper considers both the bearish and bullish market phases of the 2008 global financial crisis to analyze the financial contagion. Design/methodology/approach The authors implement the copula framework-based GJR-GARCH-t model for the period from December 31, 2004 to September 30, 2016. Findings The marginal models suggest a strong persistence of volatility in all stock markets. The dependence structure for stock market pairs under-consideration is not all strictly symmetrical. Moreover, the Islamic stock markets witness the same behavior as their conventional counterparts. Finally, the resilience and the decoupling hypotheses are not all around upheld by the empirical proof. Originality/value The findings of this paper are very important for global investors in their risk management during extreme market events. As the Sukuk is considered as a safe haven during crisis episodes, the investors are invited to take it into account for further portfolio diversification.

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“…Also, the empirical results of Chiou (2008) suggest that local investors in underdeveloped countries in East Asia and Latin America might benefit more from regional diversification than from global diversification. Even though the international market has become increasingly integrated over the past two decades (Anas et al 2020), leading to a decline in diversification benefits, investors have concluded that this finding still holds.…”

Section: Optimal Portfolio Size Across Different Capital Marketsmentioning

confidence: 99%

How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature

Zaimović

Omanovic

Arnaut-Berilo

2021

JRFM

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Using extensive and comprehensive databases to select a subset of research papers, we aim to critically analyze previous empirical studies to identify certain patterns in determining the optimal number of stocks in well-diversified portfolios in different markets, and to compare how the optimal number of stocks has changed over different periods and how it has been affected by market turmoil such as the Global Financial Crisis (GFC) and the current COVID-19 pandemic. The main methods used are bibliometric analysis and systematic literature review. Evaluating the number of assets which lead to optimal diversification is not an easy task as it is impacted by a huge number of different factors: the way systematic risk is measured, the investment universe (size, asset classes and features of the asset classes), the investor’s characteristics, the change over time of the asset features, the model adopted to measure diversification (i.e., equally weighted versus optimal allocation), the frequency of the data that is being used, together with the time horizon, conditions in the market that the study refers to, etc. Our paper provides additional support for the fact that (1) a generalized optimal number of stocks that constitute a well-diversified portfolio does not exist for whichever market, period or investor. Recent studies further suggest that (2) the size of a well-diversified portfolio is larger today than in the past, (3) this number is lower in emerging markets compared to developed financial markets, (4) the higher the stock correlations with the market, the lower the number of stocks required for a well-diversified portfolio for individual investors, and (5) machine learning methods could potentially improve the investment decision process. Our results could be helpful to private and institutional investors in constructing and managing their portfolios and provide a framework for future research.

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Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets

Cited by 13 publications

References 55 publications

Co-Movement, Portfolio Diversification, Investors’ Behavior and Psychology: Evidence from Developed and Emerging Countries’ Stock Markets

Co-Movement, Portfolio Diversification, Investors’ Behavior and Psychology: Evidence from Developed and Emerging Countries’ Stock Markets

Asymmetric dependence structures and decoupling hypothesis: Islamic versus conventional equity indices with copula approach

How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature

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