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Tail risk analysis of the S&P/OIC COMCEC 50 index

Author

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  • Mahmoud Bekri
  • Young Shin (Aaron) Kim

Abstract

The S&P/OIC COMCEC 50 Sharia index is a joint index created by the organization of the Islamic conference (OIC) member states' stock exchanges forum and S&P indices. It is a Sharia-compliant benchmark of the 50 leading companies from OIC-members. In Islamic finance, the portfolio manager (mudharib) is committed to use advanced models and reliable tools, according to the safety-first rule of investing (hifdh almal) Sharia rule. We suggest, based on the empirical properties of the daily data, three approaches for catching the fat tails of the S&P/OIC COMCEC 50, using a two-step process: (1) the time-series model, to explain the clustering of volatility and (2) the heavy-tailed model for the filtered residuals. We show how the use of the stable distributions achieves a great amelioration of the modelling of the S&P/OIC COMCEC 50, considering the different statistical tests and in terms of the assessment of the value of tail risk.

Suggested Citation

  • Mahmoud Bekri & Young Shin (Aaron) Kim, 2015. "Tail risk analysis of the S&P/OIC COMCEC 50 index," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 15(1), pages 1-16, March.
    • Handle: RePEc:bor:bistre:v:15:y:2015:i:1:p:1-16
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    More about this item

    Keywords

    Islamic stock index; Tail risk; Stable and tempered stable distributions;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C - Mathematical and Quantitative Methods
    • C - Mathematical and Quantitative Methods
    • G - Financial Economics
    • G - Financial Economics

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