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A statistical analysis of uncertainty for conventional and ethical stock indexes

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  • Jawadi, Fredj
  • Jawadi, Nabila
  • Idi Cheffou, Abdoukarim

Abstract

This study estimates and compares financial uncertainty for two classes of ethical assets (Islamic and socially responsible) against the conventional US stock market. To this end, in line with Granger and Poon (2003), we use the class of asymmetric generalized autoregressive conditional heteroscedasticity modeling to measure uncertainty for three major stock indexes, the Dow Jones Industrial Index, Dow Jones Islamic Index, and Dow Jones Sustainability Index, over the period 1999–2017. Our findings indicate that contrary to expectations, conventional and ethical investments show high comparable levels of uncertainty, but vary with phases of the business cycle. Furthermore, we provide significant and cyclical impulse response reaction functions between uncertainty measures, suggesting further evidence of uncertainty spillovers. These findings could help investors to better rebalance their portfolios with regard to uncertainty change.

Suggested Citation

  • Jawadi, Fredj & Jawadi, Nabila & Idi Cheffou, Abdoukarim, 2019. "A statistical analysis of uncertainty for conventional and ethical stock indexes," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 9-17.
    • Handle: RePEc:eee:quaeco:v:74:y:2019:i:c:p:9-17
    DOI: 10.1016/j.qref.2018.03.002
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    Cited by:

    1. Rahman, Md Lutfur & Hedström, Axel & Uddin, Gazi Salah & Kang, Sang Hoon, 2021. "Quantile relationship between Islamic and non-Islamic equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    2. María de la O González & Francisco Jareño & Camalea El Haddouti, 2019. "Sector Portfolio Performance Comparison between Islamic and Conventional Stock Markets," Sustainability, MDPI, vol. 11(17), pages 1-23, August.
    3. Chen, Yu & Lin, Boqiang, 2022. "Quantifying the extreme spillovers on worldwide ESG leaders' equity," International Review of Financial Analysis, Elsevier, vol. 84(C).
    4. Md Hakim Ali & Md Akther Uddin & Md. Atiqur Rahman Khan & Blake Goud, 2021. "Faith‐based versus value‐based finance: Is there any portfolio diversification benefit between responsible and Islamic finance?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5570-5583, October.
    5. Shahzad, Umer & Ghaemi Asl, Mahdi & Tedeschi, Marco, 2023. "Is there any market state-dependent contribution from Blockchain-enabled solutions to ESG investments? Evidence from conventional and Islamic ESG stocks," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 139-154.
    6. Alexakis, Christos & Kenourgios, Dimitris & Pappas, Vasileios & Petropoulou, Athina, 2021. "From dotcom to Covid-19: A convergence analysis of Islamic investments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    7. Sherif, Mohamed, 2020. "The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    8. Olofsson, Petter & Råholm, Anna & Uddin, Gazi Salah & Troster, Victor & Kang, Sang Hoon, 2021. "Ethical and unethical investments under extreme market conditions," International Review of Financial Analysis, Elsevier, vol. 78(C).
    9. Delle Foglie, Andrea & Panetta, Ida Claudia, 2020. "Islamic stock market versus conventional: Are islamic investing a ‘Safe Haven’ for investors? A systematic literature review," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Uncertainty; Islamic stock index; Socially responsible investment; Asymmetric GARCH; VAR model; Impulse response function;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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