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Past studies suggest that the Islamic …nance system is only weakly linked or even decoupled from conventional markets. If this statement is true, then this system may provide a cushion against potential losses resulting from probable future …nancial crises. In this article, we make use of heteroscedasticity-robust linear Granger causality and nonlinear Granger causality tests to examine the links between the Islamic and global conventional stock markets, and between the Islamic stock market and several global economic and …nancial shocks. Our …ndings reveal evidence of signi…cant linear and nonlinear causality between the Islamic and conventional stock markets but more strongly from the Islamic stock market to the other markets. They also show potent causality between the Islamic stock market and …nancial and risk factors. This evidence leads to the rejection of the hypothesis of decoupling of the Islamic market from their conventional counterparts, thereby reduces the portfolio bene…ts from diversi…cation with Sharia-based markets. A striking result shows a connection between the Islamic stock market and interest rates and interestbearing securities, which is inconsistent with the Sharia rules. The results also suggest that modeling Islamic stock markets should be done within a nonlinear VAR system and not through a regression equation.

This study investigates the dynamic connectedness between stock indices and the effect of economic policy uncertainty (EPU) in eight countries where COVID-19 was most widespread (China, Italy, France, Germany, Spain, Russia, the US, and the UK) by implementing the time-varying VAR (TVP-VAR) model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results showed that stock markets were highly connected during the entire period, but the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of 2020. Moreover, we found that the European stock markets (except Italy) transmitted more spillovers to all other stock markets than they received, primarily during the COVID-19 outbreak. Further analysis using a nonlinear framework showed that the dynamic connectedness was more pronounced for negative than for positive returns. Also, findings showed that the direction of the EPU effect on net connectedness changed during the pandemic onset, indicating that information spillovers from a given market may signal either good or bad news for other markets, depending on the prevailing economic situation. These results have important implications for individual investors, portfolio managers, policymakers, investment banks, and central banks.

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