Co-movement between Sukuk, Conventional Bond and Islamic Stock Markets under Bullish and Bearish Market Conditions: An Application of Quantile-on-Quantile Regression

Abstract

This study explores the asymmetric co-movement between conventional bonds market, sukuk market and Islamic stock markets of top ten Islamic economies. The study used daily data ranging from 1st January 2008 to 31st December 2019. However, for the dependency structure, we used Quantile-on-Quantile (QQ) method, which captures the dependence between the entire distributions of financial assets and uncovers some nuance features of the relationship. The empirical findings show that under the stress condition (bearish condition), both bonds and stocks markets negatively commove. However, in the bullish market condition, these markets show week positive correlation/ co-movement in all the sample economies. The findings also confirmed that under the bearish condition, a mild negative correlation exists between sukuk and Islamic stock markets except for Malaysia. However, in the bullish market condition, sukuk markets and stock markets show strong positive correlation in all sample economies. Furthermore, study also enriches quantiles estimation by using quantiles granger causality approach. The findings show that the conventional bond market, sukuk market and Islamic stock market granger cause to each other on all the quantiles (in bullish or bearish market conditions).

Islamic financial markets response to uncertainty: an application of quantile-on-quantile approach

“…Previous studies use several kinds of methods to see the impact of different variables on stock markets, such as NARDL, SVAR, quantile regression, etc. However, there are always heterogeneities and complexities in financial variables that make estimation potentially challenging using these typical econometric methodologies (Simand Zhou, 2015; Farooq et al ., 2020). Moreover, previous studies (e.g.…”