Did Brexit change asset co-movements?

Saha, Shrabani; Sen, Anindya; Smith-Han, Christine; Wesselbaum, Dennis

doi:10.1108/jfep-07-2020-0152

Cited by 2 publications

(1 citation statement)

References 30 publications

(38 reference statements)

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“…This information is crucial for Islamic asset managers and mutual funds to predict the further shocks that might happen during the process of exit from the EU and take necessary measures by hedging their funds against risks. A recent study of Saha et al (2021) found that Brexit has a significant effect on financial asset co-movements, which indicates the importance of including the Brexit effect in financial decision-making.…”

Section: Multivariate Generalised Autoregressive Conditional Heteroskedastic-dynamic Conditional Correlationsmentioning

confidence: 99%

Impact of Brexit on Islamic stock markets: employing MGARCH-DCC and wavelet correlation analysis

Cikiryel

Aslan

Özdemir

2021

IMEFM

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Purpose This paper aims to study the co-movement dynamics of Islamic equity returns to explain international portfolio diversification opportunities for investors having a heterogeneous stock holding period in light of Brexit. Design/methodology/approach The authors use the following three recent methodologies: the multivariate generalised autoregressive conditional heteroskedastic-dynamic conditional correlations, continuous wavelet transforms and maximum overlap discrete wavelet transform. Dow Jones Islamic country-based indexes are used from 2 September 2013 to 31 December 2019. Findings There is a high correlation between the United Kingdom (UK) Islamic stock market return with the Canadian, USA, Malaysian and Indian implying lesser diversification benefits for the investors. However, the results tend to indicate that UK Islamic stock market investors who have allocated their investment in Sri Lanka, Kuwait, Japan and Turkey have enjoyed diversification benefits. Besides, there is a declining correlation between UK Islamic stock markets and other selected markets aftermath of Brexit. Turkey seems the most volatile stock over the period, appealing to risk-lover investors to gain from price changes. When the shock occurs in the financial sector, the volatility is mean-reverting faster than other markets in Sri Lanka. On the other hand, Malaysia appears to have the least volatility implying a stable financial sector. Research limitations/implications The results tend to shed light on effective portfolio diversification benefits in light of the recent shock (Brexit) between the UK Islamic stock index and other selected indexes that vary from country to country depending on investment horizons. This critically confirms the significance of heterogeneity in investment horizons and provides significant inferences for portfolio diversification strategies. Originality/value To the best of the authors’ knowledge, this study is the first study investigating the Brexit effect on Islamic stocks, guiding Shariah sensitive investors in their diversification strategies, providing information to investors to consider the implications of this incident on Islamic stocks for future shocks.

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Section: Multivariate Generalised Autoregressive Conditional Heteroskedastic-dynamic Conditional Correlationsmentioning

confidence: 99%

Impact of Brexit on Islamic stock markets: employing MGARCH-DCC and wavelet correlation analysis

Cikiryel

Aslan

Özdemir

2021

IMEFM

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Multi‐Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID‐19 Pandemic

et al. 2022

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Owing to the adverse impact of the COVID-19 pandemic on world economies, it is expected that information flows between commodities and uncertainties have been transformed. Accordingly, the resulting twisted risk among commodities and related uncertainties is presumed to rise during stressed market conditions. Therefore, investors feel pressured to find safe haven investments during the pandemic. For this reason, we model a mixture of asymmetric and non-linear bi-directional causality between global commodities and uncertainties at different frequencies through the information flow theory. Consequently, we utilise the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) and the Rényi effective transfer entropy techniques to establish the dynamic flow of information. The intrinsic mode functions (IMFs) from the CEEMDAN are carefully extracted into multi-frequencies through cluster analysis to reconstruct the series into high, medium, and low frequencies in addition to the residue. We utilise daily data from December 31st, 2019, to March 31st, 2021, to provide insights into the COVID-19 pandemic. The correlation coefficients and variances demonstrate that the high frequency (IMFs 1–4) which measures the short-term dynamics is the dominant frequency, suggesting short-lived market fluctuations relative to real economic growth for institutional investors. Moreover, outcomes from the multi-frequency entropy indicate a negative bi-directional causality of information flow between global commodities and uncertainties, especially in the long term. Generally, the findings present pertinent inferences for portfolio diversification, policy decisions, and risk management schemes for global commodities and markets volatilities. We, therefore, advocate that market volatilities act as effective hedges for global commodities, and they clearly act as balancing assets rather than substitutes in the long-term dynamics of the COVID-19 pandemic. Investors who delayed in investing within financial markets of commodities and market volatilities are likely to minimise their portfolio risks.

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Did Brexit change asset co-movements?

Cited by 2 publications

References 30 publications

Impact of Brexit on Islamic stock markets: employing MGARCH-DCC and wavelet correlation analysis

Impact of Brexit on Islamic stock markets: employing MGARCH-DCC and wavelet correlation analysis

Multi‐Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID‐19 Pandemic

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