Systemic risk contagion of green and Islamic markets with conventional markets

Abstract

Financial markets are exposed to extreme uncertain circumstances escalating their tail risk. Sustainable, religious, and conventional markets represent three different markets with various characteristics. Motivated with this, the current study measures the tail connectedness between sustainable, religious, and conventional investments by employing a neural network quantile regression approach from December 1, 2008 to May 10, 2021. The neural network recognized religious and conventional investments with maximum exposure to tail risk following the crisis periods reflecting strong diversification benefits of sustainable assets. The Systematic Network Risk Index spots Global Financial Crisis, European Debt Crisis, and COVID-19 pandemic as intensive events yielding high tail risk. The Systematic Fragility Index ranks the stock market in the pre-COVID period and Islamic stocks during the COVID sample as the most susceptible markets. Conversely, the Systematic Hazard Index nominates Islamic stocks as the chief risk contributor in the system. Given these, we portray various implications for policymakers, regulatory bodies, investors, financial market participants, and portfolio managers to diversify their risk using sustainable/green investments.

An Analysis of Residual Financial Contagion in Romania’s Banking Market for Mortgage Loans

“…On the other hand, Mahmood et al studied how the perception and disclosure of corporate social responsibility (CSR) by firms determine their financial performance. According to Naeem et al [41], financial markets are also exposed to extreme and uncertain circumstances that amplify tail risk, including sustainable, religious, and conventional markets. Therefore, they apply a neural network to identify religious and conventional investments with a high exposure to tail risk.…”