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Dynamic and frequency connectedness across Islamic stock indexes, bonds, crude oil and gold

Nader Trabelsi (Department of Finance and Investment, College of Economics and Administrative Sciences, Al Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh, Saudi Arabia and Higher Institute of Computer Science and Management of Kairouan, LARTIGE, Tunisia)

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 4 June 2019

Issue publication date: 21 August 2019

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Abstract

Purpose

This paper aims to investigate the connectedness of Islamic Stock Markets in five regional financial systems, namely, the United States, the United Kingdom, Europe (EU), GCC (Gulf Cooperation Council) and APAC (Asia-Pacific Countries), and across different asset classes (i.e. bonds, gold and crude oil).

Design/methodology/approach

This methodology is inspired by Diebold and Yilmaz (2012) and Barunlik and Krehlik (2017) for performing dynamic variance decomposition network and for studying time–frequency dynamics of connectedness at different frequencies.

Findings

Results show that the nature of connectedness over the past decade is time–frequency dynamics. The decomposition of the total volatility spillovers is mostly dominated by the long-run component. Furthermore, dominant regions are the largest contributors of spillover index, with the lowest contribution in the system coming from the GCC market. Results also reveal a slightly higher volatility spillover index of Islamic than conventional equity indexes. Finally, the system that encompasses commodities and Islamic finance instruments, generates the much lower volatility spillover.

Originality/value

The findings have significant implications for portfolio managers who are interested in being able to predict asset returns, as well as for policymakers who are concerned with market stability.

Keywords

Citation

Trabelsi, N. (2019), "Dynamic and frequency connectedness across Islamic stock indexes, bonds, crude oil and gold", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 12 No. 3, pp. 306-321. https://doi.org/10.1108/IMEFM-02-2018-0043

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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