Risk transmission between Islamic and conventional stock markets: A return and volatility spillover analysis

Abstract

Abstract. This paper contributes to the current debate on the empirical validity of the decoupling hypothesis of the Islamic stock market from its mainstream counterparts by examining return and volatility spillovers across the global Islamic stock market, three main conventional national stock markets (the US, the UK and Japan) and a number of influential macroeconomic and financial variables over the period from July 1996 to June 2016. To that end, the VAR-based spillover index approach based on the generalized VAR framework developed by Diebold and Yilmaz (2012) is applied. The empirical analysis shows strong interactions in return and volatility among the global Islamic stock market, the conventional stock markets and the set of major risk factors considered. This finding means that the Islamic equity universe does not constitute a viable alternative for investors who wish to hedge their investments against the vagaries of stock markets, but it is exposed to the same global factors and risks hitting the conventional financial system. Therefore, this evidence leads to the rejection of the decoupling hypothesis of the Islamic stock market from conventional stock markets, which has significant implications for faith-based investors and policy makers in terms of portfolio diversification, hedging strategies and contagion risk.Keywords: Islamic stock market, conventional stock markets, global risk factors, return and volatility spillovers, spillover index approach JEL Classification: C58, G01, G15

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

“…The research provides insight into the economic consequences of Shariah edicts on Islamic capital markets and identifies the rulings that can be considered advantageous (according to their Shariah compliance and economic performance) to increase the participation of Examples of comparative studies between Islamic and conventional capital markets include Ajmi, Hammoudeh, Nguyen, and Sarafrazi (2014), Al-Khazali, Lean, and Samet (2014), Ashraf (2013), Ashraf and Mohammad (2014), Dewandaru, Rizvi, and Masih (2014), Haddad, Homaifar, Elfakhani, andAhmedov (2009), Hoepner, Rammal, andRezec (2011), Girard (2010), Hammoudeh, Mensi, Reboredo, and, Ho, Rahman, Yusuf, and Zamzamin (2014), Jawadi, Jawadi, and Louhichi (2014), Rizvi, Arshad, and Alam (2015), Shahzad, Ferrer, Ballester, and Umar (2017), and Yilmaz, Sensoy, Ozturk, and Hacihasanoglu (2015). 2 These methods include istihsan (juristic preference), maslahah mursalah (unrestricted interest or benefit), sadd al dhara'i (blocking the means), urf (custom), and istishab (presumption of continuity).…”

“…Examples of comparative studies between Islamic and conventional capital markets include Ajmi, Hammoudeh, Nguyen, and Sarafrazi (), Al‐Khazali, Lean, and Samet (), Ashraf (), Ashraf and Mohammad (), Dewandaru, Rizvi, and Masih (), Haddad, Homaifar, Elfakhani, and Ahmedov (), Hoepner, Rammal, and Rezec (), Hassan and Girard (), Hammoudeh, Mensi, Reboredo, and Nguyen (), Ho, Rahman, Yusuf, and Zamzamin (), Jawadi, Jawadi, and Louhichi (), Rizvi, Arshad, and Alam (), Shahzad, Ferrer, Ballester, and Umar (), and Yilmaz, Sensoy, Ozturk, and Hacihasanoglu ().…”

Measuring the increasing connectedness of Chinese assets with global assets: using a variance decompositions method

“…Fan and Du () use both linear and non‐linear econometric models to examine the mean spillover and the volatility spillover between the CSI 500 stock index futures market and the underlying spot market. Recent publications in the Asia‐Pacific region focus on risk contagion and spillover effects not only among different assets, but also among the different departments, such as industry, service industry and finance (see Balli et al ., ; Shahzad et al ., ; Xu et al ., ). However, few of these studies focus on the dynamic directional spillovers between Chinese assets and other global assets.…”

Pengaruh Sistem Perbankan, Makroekonomi, Dinamika Pasar Keuangan terhadap Perkembangan Sukuk Korporasi

“…Penelitian ini menemukan adanya hubungan komplementer pada obligasi korporasi dan perbankan syariah pada perkembangan sukuk korporasi sehingga diharapkan adanya sinergi dan koordinasi para pemangku kepentingan yaitu pemerintah, pelaku industri, perusahaan dan pihak-pihak terkait. JEL Classification: G1, G3, G14, G4 PENDAHULUAN Setelah terjadinya krisis keuangan pada tahun 2008, industri keuangan syariah mengalami peningkatan yang drastis (Shahzad et. al., 2017).…”

“…Adapun prinsip-prinsip syariah pada sukuk adalah melarang adanya pembayaran dan penerimaan bunga (riba), transaksi yang melibatkan ketidakpastian yang berlebihan (gharar) dan perjudian (maysir), yang meliputi spekulasi, short selling dan derivatif keuangan tanpa transaksi barang nyata yang mendasarinya (Maghyereh dan Awartani, 2016;Sclip et. al., 2016;Shahzad et. al., 2017).…”