International audienceDoes Islamic finance constitute a promising solution for the current global financial crisis and are Islamic financial innovations enough to reassure investors, stabilize financial systems and provide them with a means of escaping from financial downturns? This article addresses these questions while investigating the dynamics of Islamic and conventional stock prices over the last few years. In particular, we apply Multivariate Vector Autoregressive (VAR) tools to test the interaction between conventional and Islamic financial products, and implement the Granger causality test to specify the dependence orientation of feedback between Islamic and conventional stock prices. Our article differs from previous work on the topic in that it develops portfolio simulations to determine whether Islamic finance can supplant conventional finance by generating investment and diversification opportunities during periods of crisis. In addition, we develop optimal portfolio strategies and investment proportions for conventional and Islamic funds to ensure the best resource allocation. Our main findings are: (i) the impact of the current crisis on the Islamic finance industry is less marked than on conventional finance, (ii) investment in Islamic products generates high returns, (iii) portfolios that include Islamic products reduce systemic risk and generate significant diversification benefits, (iv) the US crisis has led to significant changes in resource allocation through changes in investment choices
This study aims to examine the issue of cryptocurrency volatility modelling and forecasting based on high-frequency data. More specifically, this study assesses whether crisis periods, particularly the coronavirus disease pandemic, influence the dynamic of cryptocurrency volatility. We investigate the four main cryptocurrency markets (Bitcoin, Ethereum Classic, Ethereum, and Ripple) from April 2018 to June 2020. The realized volatility measure is computed and decomposed to various components (continuous versus discontinuous, positive and negative semi-variances, and signed jumps). A variety of heterogeneous autoregressive (HAR) models are developed including these components, thereby enabling assessment of different assumptions (including persistence and asymmetric dynamic) of modelling and volatility forecasting based on in-sample and out-of-sample forecasting strategies, respectively. Our results reveal three main findings. First, the extended HAR model that includes the positive and negative jumps appears to be the best model for predicting future volatility for both crisis and non-crisis periods. Second, during the crisis period, only the negative jump component is statistically significant. Third, in terms of volatility forecasting, the results show that the extended HAR model that includes positive and negative semi-variances outperform the other models.
This study measures the global economic impact of the coronavirus outbreak. This pandemic is characterized by demand and supply shocks, leading to restrictions on trade, product and service transactions, and capital flow mobility. We investigate its impact on currency markets, stock market performance, and investor fear sentiment. We employ an empirical, time-scale approach based on the continuous wavelet transform—appropriate for time-series characteristics during times of turmoil. Based on daily data for four main cluster countries (China, France, Italy, and the USA), our results show that the impact of the pandemic's evolution on the main economic indicators in China exhibits a different pattern from France, Italy, and the USA. For China, our results show that the pandemic evolution co-moves with the main economic indicators only in the short term (one week). The effect is more persistent in other countries. We also show that the main economic indicators are more sensitive to pandemic evolution assessed by the number of deaths rather than number of cases, and that currency and financial markets are affected in different timescales. These findings might assist policymakers in addressing the feedback loop between currency markets and capital flows and help investors find alternative assets to hedge against heath shocks.
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