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Regime-dependent relation between Islamic and conventional financial markets


  • Emrah Ismail Cevik
  • Mehmet Fatih Bugan


The aim of this paper is to examine regime-dependent dynamic relation between Islamic and conventional financial markets by means of Markov Switching Vector Autoregression (MS-VAR). Empirical results suggest evidence in favor of regime-switching properties in all returns series. These findings provide strong evidence in favor of nonlinear relation between the conventional and Islamic stock markets and thus, it is necessary to employ the MS-VAR models to determine the dynamic relationship between series. The regime-dependent Granger causality test and impulse-responses analysis results suggest that Islamic stock market is affected from conventional stock markets in both the bear and bull markets regimes. Therefore, the idea that Islamic financial markets provide diversification benefits and they are safe havens during financial distressed periods cannot be supported empirically.

Suggested Citation

  • Emrah Ismail Cevik & Mehmet Fatih Bugan, 2018. "Regime-dependent relation between Islamic and conventional financial markets," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(2), pages 114-121, June.
  • Handle: RePEc:bor:bistre:v:18:y:2018:i:2:p:114-121

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    Cited by:

    1. Umar, Zaghum & Yousaf, Imran & Gubareva, Mariya & Vo, Xuan Vinh, 2022. "Spillover and risk transmission between the term structure of the US interest rates and Islamic equities," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    2. Hasan, Md. Bokhtiar & Mahi, Masnun & Hassan, M. Kabir & Bhuiyan, Abul Bashar, 2021. "Impact of COVID-19 pandemic on stock markets: Conventional vs. Islamic indices using wavelet-based multi-timescales analysis," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    3. Al-Yahyaee, Khamis Hamed & Mensi, Walid & Rehman, Mobeen Ur & Vo, Xuan Vinh & Kang, Sang Hoon, 2020. "Do Islamic stocks outperform conventional stock sectors during normal and crisis periods? Extreme co-movements and portfolio management analysis," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    4. Liu, Haiying & Saleem, Muhammad Mansoor & Al-Faryan, Mamdouh Abdulaziz Saleh & Khan, Irfan & Zafar, Muhammad Wasif, 2022. "Impact of governance and globalization on natural resources volatility: The role of financial development in the Middle East North Africa countries," Resources Policy, Elsevier, vol. 78(C).
    5. Hasan, Md. Bokhtiar & Hassan, M. Kabir & Rashid, Md. Mamunur & Alhenawi, Yasser, 2021. "Are safe haven assets really safe during the 2008 global financial crisis and COVID-19 pandemic?," Global Finance Journal, Elsevier, vol. 50(C).
    6. Shabeer Khan & Niaz Ahmed Bhutto & Uzair Abdullah Khan & Mohd Ziaur Rehman & Wadi B. Alonazi & Abdullah Ludeen, 2022. "Ṣukūk or Bond, Which Is More Sustainable during COVID-19? Global Evidence from the Wavelet Coherence Model," Sustainability, MDPI, vol. 14(17), pages 1-20, August.
    7. 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).

    More about this item


    Islamic finance; Financial markets; MS-VAR;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling


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