To read this content please select one of the options below:

Comparing Islamic and conventional stock markets in GCC: a TVP-VAR analysis

Muhammad Abubakr Naeem (Economics and Finance Department, College of Business and Economics, United Arab Emirates University, Al-Ain, United Arab Emirates) (Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon)
Shabeer Khan (College of Business, Al Yamamah University, Riyadh, Saudi Arabia)
Mohd Ziaur Rehman (Department of Finance, College of Business Administration, King Saud University, Riyadh, Saudi Arabia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 23 May 2024

65

Abstract

Purpose

This study investigates the dynamic interdependence between Islamic and conventional stock markets in the Gulf Cooperation Council (GCC) economies and the influence of global financial uncertainties on this interconnection.

Design/methodology/approach

The study employs the time-varying parameter vector autoregressions (TVP-VAR) technique and analyzes daily data from December 1, 2008 to July 14, 2021.

Findings

The research reveals robust interconnectedness within individual countries between Islamic and conventional stock markets, particularly during crises. Islamic stock markets exhibit greater susceptibility to spillover effects compared to conventional stocks. The UAE and Kingdom of Saudi Arabia (KSA) stock markets are identified as net transmitters of spillovers, while Oman, Bahrain and Kuwait receive more spillovers than they transmit. Global financial uncertainty measures (GVZ, USEPU and UKEPU) positively influence financial market interconnectedness, with EVZ exhibiting a negative impact while VIX and OVX remain statistically insignificant.

Practical implications

Investors and portfolio managers in Oman, Bahrain and Kuwait should carefully evaluate the UAE and KSA markets before making investment decisions due to the latter's role as net transmitters in the region. Additionally, it is emphasized that Islamic and conventional stocks should not be considered interchangeable asset classes for risk hedging.

Social implications

Investors must be aware that Islamic and conventional stocks cannot be used as an alternative asset class to hedge risk.

Originality/value

The present article offers valuable insights for practitioners and researchers delving into the comparative analysis of Islamic and conventional stock markets within the GCC context. It enhances our comprehension of the dynamic interdependence between Islamic and conventional stock markets in the GCC economies and the impact of global financial uncertainties on this intricate relationship.

Keywords

Acknowledgements

The authors extend their sincere appreciation to the Researchers Supporting Project number (RSPD2024R1038), King Saud University, Riyadh, Saudi Arabia for the financial support.

Citation

Naeem, M.A., Khan, S. and Rehman, M.Z. (2024), "Comparing Islamic and conventional stock markets in GCC: a TVP-VAR analysis", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-08-2023-1327

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

Related articles