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The purpose of this chapter is to analyze the possible portfolio diversification opportunities between Asian Islamic market and other regions’ Islamic markets; namely USA, Europe, and BRIC. This study makes the initial attempt to fill in the gaps of previous studies by focusing on the proxies of global Islamic markets to identify the correlations among those selected markets by employing the recent econometric methodologies such as multivariate generalized autoregressive conditional heteroscedastic–dynamic conditional correlations (MGARCH–DCC), maximum overlap discrete wavelet transform (MODWT), and the continuous wavelet transform (CWT). By utilizing the MGARCH-DCC, this chapter tries to identify the strength of the time-varying correlation among the markets. However, to see the time-scale-dependent nature of these mentioned correlations, the authors utilized CWT. For robustness, the authors have applied MODWT methodology as well. The findings tend to indicate that the Asian investors have better portfolio diversification opportunities with the US markets, followed by the European markets. BRIC markets do not offer any portfolio diversification benefits, which may be explained partly by the fact that the Asian markets cover partially the same countries of BRIC markets, namely India and China. Considering the time horizon dimension, the results narrow down the portfolio diversification opportunities only to the short-term investment horizons. The very short-run investors (up to eight days only) can benefit through portfolio diversification, especially in the US and European markets. The above-mentioned results have policy implications for the Asian Islamic investors (e.g., Portfolio Management and Strategic Investment Management).

The aim of this study is to measure portfolio diversification benefits of the Turkey-based equity investors into top trading partner countries. Portfolio diversification benefits are analyzed from the viewpoint of two types of investors in Turkey: conventional equities investors and Islamic equity investors.

In order to evaluate the time-varying correlations of the trading partner country's stock index returns with the Turkish stock index returns, the multivariate-generalized autoregressive conditional heteroskedasticity–dynamic conditional correlation (GARCH-DCC) is applied based on daily data covering 13 years' period between January 22, 2008 and January 22, 2021.

The results revealed that the US stock indices provide the most diversified benefit for both conventional and Islamic Turkey-based equity investors. In general, Islamic indices exhibit relatively lower correlation with trading partners than conventional indices. Turkey and Russia are recorded as the most volatile indices.

The diversification potential in trading partners for Turkey-based Islamic equity investors has not been studied yet. This study is to fill in this gap in the literature and to give fruitful insights to both conventional and Islamic investors.

The purpose of this paper is to evaluate the capability of the hidden Markov model using Googling investors’ sentiments to predict the dynamics of Islamic indexes’ returns in the Middle East and North Africa (MENA) financial markets from 2004 to 2018.

The authors propose a hidden Markov model based on the transition matrix to apprehend the relationship between investor’s sentiment and Islamic index returns. The proposed model facilitates capturing the uncertainties in Islamic market indexes and the possible effects of the dynamics of Islamic market on the persistence of these regimes or States.

The bearish state is the most persistent sentiment with the longest duration for all the MENA Islamic markets except for Jordan, Morocco and Qatar. In addition, the obtained results indicate that the effect of sentiment on predicting the future Islamic index returns is conditional on the MENA States. Besides, the estimated mean returns for each state indicates that the bullish and calm states are ideal for investing in Islamic indexes of Bahrain, Oman, Morocco, Kuwait, Saudi Arabia and United Arab Emirates. However, only the bullish state is ideal for investing Islamic indexes of Jordan, Egypt and Qatar.

This paper has used data at a monthly frequency that can explain only short-term dynamics between Googling investor’s sentiment and the MENA Islamic stock market returns. Moreover, this work can be done on the stock markets while taking into account the specificity of each activity sector.

In fact, the findings of this paper are helpful for academics, analysts and practitioners, and more specifically for the Islamic MENA financial investors. Moreover, this study provides useful insights not only into the duration of the relationship between the indexes’ returns and the investors’ sentiments in the five states but also into the transition probabilities which have implications for how investors could be guided in their choice of future investment in a portfolio with Islamic indexes. Findings of this paper are important and valuable for policy-makers and investors. Thus, predicting the effect of Googling investors’ sentiment on the MENA Islamic stock market dynamics is important for portfolio diversification by domestic and international investors. Moreover, the results of this paper gave new insights into financial analysts about the dynamic relationship between Googling investors’ sentiment and Islamic stock market returns across market regimes. Therefore, the findings of this study might be useful for investors as they help them capture the unobservable dynamics of the changes in the investors’ sentiment regimes in the MENA financial markets to make successful investment decisions.

To the best of the authors’ knowledge, this paper is the first to use the hidden Markov model to examine changes in the Islamic index return dynamics across five market sentiment states, namely the depressed sentiment (S1), the bullish sentiment (S2), the bearish sentiment (S3), the calm sentiment (S4) and the bubble sentiment (S5).

This paper aims to examine the performance of Islamic and conventional stocks listed at the Pakistan Stock Exchange by using both parametric and non-parametric approaches. The motivation is to do risk-return analysis of Islamic stock prices and conventional stock prices.

It uses various measures of performance, e.g. Sharpe ratio, Treynor ratio, Jensen's alpha, beta, generalized auto-regressive conditional heteroskedasticity and stochastic dominance. Using the Karachi Meezan Index-30 (KMI-30) and the Karachi Stock Exchange Index-30 (KSE-30) as proxies for Islamic and conventional stock prices, respectively, it examines the performance of Islamic and conventional stocks. The daily data of KMI-30 and KSE-30, covering period from June 9, 2009 to June 20, 2020 are used.

The results show that the overall KMI-30 outperforms the KSE-30. The returns of the KMI-30 are greater than the KSE-30. However, the risk and volatility of the KMI-30 and KSE-30 are similar. Further, the KMI-30 has higher excess returns per unit of total risk than the KSE-30. But both indexes have similar excess returns per unit of systematic risk. Moreover, the KMI-30 returns have stochastically dominance over the KSE-30 returns. These results reveal that the Islamic index performs better than the conventional index.

The findings provide several practical implications in financial and investment decisions making by investors, managers and policymakers such as strategies for asset allocation and investment. Further, in risk management, it provides guidance for allocating portfolios and managing risk. The investment in Islamic stocks may mitigate potential risk within asset portfolios.

This research is unique in its approach to the analysis of the performance comparison of conventional and Islamic stock by using comprehensive parametric and non-parametric estimation techniques. Such research has not been undertaken in the Pakistan's equity market since.

This paper aims to investigate the risk-return and volatility spillover within the Tunisian stock market during the COVID-19 pandemic analyzing both the Islamic and conventional stocks’ performance.

Both symmetric (GARCH and GARCH-M) and asymmetric (Threshold GARCH and Exponential GARCH) models are used to analyze the market returns and volatility response. Standard and Poor’s (S&P) index has been used to test both the Islamic and conventional stocks within the Tunisian stock market.

The findings suggest that both Tunisia Islamic and conventional stock markets are highly persistent; however, the conventional stock index showed a negative return spillover on the Islamic stocks during the pandemic. The conventional stock index has also shown a higher exposure to risk for a lower amount of return, and evidence of potential diversification benefit between both indexes was found during the pandemic, whereas the Islamic market showed a positive leverage effect, indicating a positive correlation between past return and future return; the conventional index implied a negative leverage effect.

The value of this paper emerges in studying three main aspects that are specific to the Tunisian stock market. This includes COVID-19 effect of return spillovers, volatility transmission across both conventional and Islamic stock market within the local financial market.

The purpose of this paper is to investigate whether Islamic stock indexes outperform conventional stock indexes, in terms of informational efficiency and risk, during the recent financial instability period.

The paper uses a state space model combined with a standard GARCH(1,1) specification while taking into account structural breakpoints. The authors allow for efficiency and volatility spillovers to be time-varying and consider break dates to locate periods of financial instability.

Empirical results show that Islamic stock indexes are more volatile than their conventional counterparts and are not totally immune to the global financial crisis. As regards of the informational efficiency, the results show that the Islamic stock indexes are more efficient than the conventional stock indexes.

Resulting evidence of this paper has several implications for international investors who wish to invest in Islamic and/or conventional stock markets. Policy makers and even academics and Sharias researchers should as well take preventive measures in order to ensure the stability of Islamic stock markets during turmoil periods. Overall, prudent risk management and precocious financial practices are relevant and crucial for both Islamic and conventional financial markets.

The originality of this study is performed by the use of time-varying models for volatility spillovers and informational efficiency. It considers structural break dates that think about the dynamic effect of informational flows on stock markets. The study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

The purpose of this paper is to examine investor sentiment by measuring the impact of market sentiment shocks on the volatility of the Islamic stock index of five ASEAN countries, with noise traders as a proxy for market sentiment.

The GJR-GARCH model is used to capture the empirically observed fact that negative shocks in the past period have a stronger impact on variance than positive shocks in the present.

All five ASEAN Islamic stock indices show clustering volatility. However, only three countries, namely, Malaysia, Thailand and Singapore, demonstrate leverage effects. In addition, the effect of market sentiment on Islamic stock index returns is observed in the Indonesian and Malaysian markets, which are the two largest Islamic markets with a dominant Muslim population in the ASEAN. This finding implies that the trading behaviours of Muslim investors in the Shariah market are the same as their behaviours in the conventional market, that is, nonadherence to the Sunnah.

Whilst establishing investment strategies, creating portfolios and providing client-advisory services, investors and fund managers should factor in the presence of market sentiment and its impact on stock performance and volatility. In addition, a capital market system preventing rumour-based transactions is compelling.

In some markets, the Islamic financial products awareness should be increased through education to attract increased domestic investors with the potential to boost growth in the Islamic stock market.

Investigation market sentiment impacts on the Islamic stock index using noise traders as a proxy.

The purpose of this paper is to quantify the extent to which the Malaysia-based equity investors can benefit from diversifying their portfolio into the conventional and Islamic Southeast Asian region and the world’s top ten largest equity indices (China, Japan, Hong Kong, India, the UK, the USA, Canada, France, Germany and Switzerland).

The multivariate GARCH-dynamic conditional correlation is deployed to estimate the time-varying linkages of the selected conventional and Islamic Asian and international stock index returns with the Malaysian stock index returns, covering approximately eight years daily starting from 29 June 2007 to 30 June 2016.

In general, in terms of volatility, the results indicate that both Asian and international Islamic stock indices are more or less volatile than its conventional counterparts. From the correlation analysis, we can see that both the conventional and Islamic MSCI indices of Japan provide more diversification benefits compared to Southeast Asian region, China, Hong Kong and India. Meanwhile, in terms of international portfolio diversification, the results tend to suggest that both the conventional and Islamic MSCI indices of the USA provide more diversification benefits compared to the UK, Canada, France, Germany and Switzerland.

The findings of this paper may have several significant implications for the Malaysia-based equity investors and fund managers who seek for the understanding of return correlations between the Malaysian stock index and the world’s largest stock market indices in order to gain higher risk-adjusted returns through portfolio diversification. With regard to policy implications, the findings on market shocks and the extent of the interdependence of the Malaysian market with cross-border markets may provide some useful insights in formulating effective macroeconomic stabilization policies in the efforts of preventing contagion effect from deteriorating the domestic economy.

Introduction – The rapid flow of information between the markets eliminates the possibility of diversifying the portfolio by bringing the markets closer, and may cause the volatility in a market to spread to another market. In this context, revealing the relationships between conventional and participation markets or financial assets is important in terms of portfolio diversification and risk management.

Purpose – The major aim of this work is to analyse the existence of volatility spillover between conventional stock index and participation index based on the indexes in Turkish Capital Markets. BIST-30 and Katılım-30 indexes are used as the representatives of conventional stock index and participation index, respectively.

Methodology – Firstly, the univariate HYGARCH (1,d,1) parameters are calculated, and secondly, the dynamic equicorrelation (DECO) methodology is applied. DECO model is proposed to simplify structural assumptions by introducing a structure in which all twosomes of returns take the same correlation for a given time period. In this way, DECO model enables to have an optimal portfolio selection in comparison to an unrestricted time varying-dynamic correlation approaches and gives more advanced forecasting ability for the duration of the financial crisis periods compared to the various portfolios.

Findings – There is a strong correlation between BIST-30 and Katılım-30. They are affected by the same shocks. We expect to see different investor behaviours for Katılım-30 and BIST-30. However, they seem to have almost the same investor profile. In addition, there is a causality in both ways and volatility spillover between them.

The purpose of this paper is to test the weak form of the efficient market hypothesis (EMH) using monthly data from 2004M08 to 2018M04 for two Canadian stock indices: the Islamic (DJICPI) and the conventional (CCSI). This paper investigates whether Islamic and/or conventional stock market would be efficient through the non-stationarity test of the stock indices.

The authors conduct the linearity test of Harvey et al. (2008) to identify whether the considered series has linear or nonlinear behavior. If the time series exhibits nonlinear evolution, then the authors apply nonlinear unit root tests (three KSS type tests and Sollis tests).

Linearity test results say that LCCSI has nonlinear behavior, while Dow Jones Islamic Canadian Price Index, LDJICPI, is a linear process. Then, the findings of this paper show that only Canadian Islamic Price Index (DJICPI) has the characteristics of random walk indicating that only conventional stock markets are inefficient. The major implication is that in Canada, fund managers and investors can (cannot) enjoy excess returns to their investment in conventional (Islamic) stock market.

Numerous empirical studies of the weak EMH are carried out within a linear framework. However, stock indices can show nonlinear behavior as a result of 2008 global financial crisis. To contribute to the existing literature on the Islamic and conventional stock market efficiency, the authors take into account both structural breaks and nonlinearity. Thus, as a testing strategy for weak EMH, the authors perform (Harvey et al., 2008) linearity test to examine the presence of nonlinear behavior and correct for outliers effect when it is needed.