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Article
Publication date: 18 December 2020

Mongi Arfaoui and Aymen Ben Rejeb

This paper aims to investigate the behavior of volatility of Islamic equity indices toward fundamental risk factors. It focuses on the degree and structure of sensitivity to…

Abstract

Purpose

This paper aims to investigate the behavior of volatility of Islamic equity indices toward fundamental risk factors. It focuses on the degree and structure of sensitivity to commodity price changes, global risk perception and term premium and whether crises and fragility periods have shaped the degree and structure of this sensitivity.

Design/methodology/approach

Quantile regression incorporating structural changes and GARCH-class model are used to establish how sensitivities are varying across volatility distribution depending on global events. The data are daily series of return indices, over the period spanning from January 1, 2001 until January 22, 2018.

Findings

The results show significant sensitivity to fundamental factors. The sensitivity is identified for different regional indices and intensified across quantiles. Speculation has shaped the structure of sensitivity at normal time, but correction holds at time of crisis. The results reveal that even if they share common features, commodities cannot be considered as homogeneous asset class. Indeed, the exact relationship cannot be observed at normal time in presence of speculation and information delay. However, at time of financial fragility and periods of crisis, the sensitivity is assigned with the plausible sign.

Practical implications

The obtained results present several policy implications as well for academics, portfolio managers and policy-makers. It opens new research paths for academic research, it helps in investment decisions, provides lessons for portfolio diversification, both for price discovery and hedging. The results serve as well to implement effective macroeconomic stabilization policies and even fiscal policies to counteract any inflationary impact of fundamental price changes on investors and Islamic banks.

Originality/value

This paper contributes to empirical literature by dealing with the sensitivity of Islamic equity indices to commodity prices and term premium along with the effect of investor sentiment. It pays attention to the financial stability of Islamic stock markets by investigating the sensitivity at normal time, during fragility periods and periods of crisis. It considers the financialization process of commodity markets and includes the term premium to control for rational expectations on term structure of interest rates and the VIX (Volatility index) as global risk perception to control for safety and risk aversion.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Open Access
Article
Publication date: 2 October 2017

Mongi Arfaoui and Aymen Ben Rejeb

The purpose of this paper is to examine, in a global perspective, the oil, gold, US dollar and stock prices interdependencies and to identify instantaneously direct and indirect…

26400

Abstract

Purpose

The purpose of this paper is to examine, in a global perspective, the oil, gold, US dollar and stock prices interdependencies and to identify instantaneously direct and indirect linkages among them.

Design/methodology/approach

A methodology based on simultaneous equations system was used to identify direct and indirect linkages for the period 1995-2015. The authors try initially to find theoretical answers to main question of the study by discussing causal bilateral relationships while focusing on multilateral interactions.

Findings

The results show significant interactions between all markets. The authors found a negative relation between oil and stock prices but oil price is significantly and positively affected by gold and USD. Oil price is also affected by oil futures prices and by Chinese oil gross imports. Gold rate is concerned by changes in oil, USD and stock markets. The US dollar is negatively affected by stock market and significantly by oil and gold price. Indirect effects always exist which confirm the presence of global interdependencies and involve the financialization process of commodity markets.

Originality/value

Motivation of this research paper is the substantial implications of price movements on real economy and financial markets. Understanding that co-movement has great value for investors, policy makers and portfolio managers. This paper differs from previous studies in several aspects. First, most of the research papers focus on bilateral linkages solely, while the authors’ investigation was implemented on all the four markets simultaneously. Second, the study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

Details

European Journal of Management and Business Economics, vol. 26 no. 3
Type: Research Article
ISSN: 2444-8451

Keywords

Article
Publication date: 12 February 2019

Arfaoui Mongi

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global…

Abstract

Purpose

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.

Design/methodology/approach

It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.

Findings

The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.

Research limitations/implications

The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.

Practical implications

The findings offer some highlights to researchers, portfolio managers and policymakers.

Originality/value

The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

Details

International Journal of Emerging Markets, vol. 14 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 28 February 2019

Aymen Ben Rejeb and Mongi Arfaoui

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…

5092

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Originality/value

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.

Details

European Journal of Management and Business Economics, vol. 28 no. 3
Type: Research Article
ISSN: 2444-8494

Keywords

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