Volatility Transmission between Islamic and Conventional Equity Markets: Evidence from Causality-in-Variance Test
AbstractThis paper examines whether a volatility/risk transmission exists between the Dow Jones Islamic stock and three conventional stock markets for the U.S., Europe, and Asia during the pre- and the in- and post-2008 crisis periods. It also explores the volatility spillover dynamics between those markets and U.S. Monetary policy, oil prices, global financial risk and uncertainty factors. The recently developed Hafner and Herwartz (2006)’s causality-in-variance test provides evidence of risk transfers between these seemingly different equity markets, indicating a contagion between them. The volatility structure of these markets is dominated by short-run volatility in the first period and by high long-run volatility in the second period. The volatility impulse response analysis indicates a similar volatility transmission pattern although it is characterized by a more volatile and short-lived structure in the second period. It also appears that the Islamic equity market responds to shocks from risk factors and not from the oil price and the U.S. economic policy uncertainty index during both periods.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201384.
Length: 22 pages
Date of creation: Dec 2013
Date of revision:
Islamic and conventional equity markets; volatility spillover;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-17 (All new papers)
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