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Switching dependence and systemic risk between crude oil and U.S. Islamic and conventional equity markets: A new evidence

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  • Mensi, Walid
  • Selmi, Refk
  • Al-Yahyaee, Khamis Hamed

Abstract

This study investigates the tail dependence switching and systemic risk between crude oil and both U.S. Islamic (Dow Jones Islamic World Index) and conventional (Dow Jones Market Index) stock markets. We apply dependence-switching copula approach, which allows for a state-varying dependence among markets under different market regimes (bear-bear, bear-bull, bull-bear, and bull-bull regime states). The results show that the U.S Islamic stock market serves as a hedge and a safe haven against oil price movements while its conventional counterparts acts only as a hedge. Morever, the tail dependence between the Islamic stock and oil markets is the lowest when a bullish Islamic stock market coexists with a bearish oil market. Furthermore, the dependence between the conventional stock and oil markets is smallest when a bear conventional market is associated with a bull oil market. Investor minimizes the systemic risk when he holds a short position in the oil market and a long position in the Islamic market, and who with long position in the oil market and a short position in the conventional stock market.

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  • Mensi, Walid & Selmi, Refk & Al-Yahyaee, Khamis Hamed, 2020. "Switching dependence and systemic risk between crude oil and U.S. Islamic and conventional equity markets: A new evidence," Resources Policy, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:jrpoli:v:69:y:2020:i:c:s0301420720308928
    DOI: 10.1016/j.resourpol.2020.101861
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    More about this item

    Keywords

    Crude oil; U.S. Islamic and conventional stock market; market; Swtiching regime; Copula; Systematic risk;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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