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How do Islamic versus conventional equity markets react to political risk? Dynamic panel evidence

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  • Walid M.A. Ahmed

Abstract

This study aims to assess the differential impact of political risk on Sharia-compliant vis-à-vis conventional stocks. For comparison purposes, the analysis is carried out within the separate contexts of developed and developing economies, employing a framework that controls for an array of relevant influences and risk factors. Based on dynamic panel GMM techniques, the results suggest that conventional equity markets of developed countries prove much more sensitive to political uncertainty than do their Islamic counterparts. In developing countries, political risk tends to have a substantial effect on both conventional and Islamic markets, with such an effect being more pronounced in the former than in the latter. Additionally, Islamic equity markets appear to be neither immune to global sources of risk nor sheltered from contagion effects triggered by financial and economic crises. Overall, the present findings lend no support to the decoupling hypothesis between Islamic and conventional equities.

Suggested Citation

  • Walid M.A. Ahmed, 2018. "How do Islamic versus conventional equity markets react to political risk? Dynamic panel evidence," International Economics, CEPII research center, issue 156, pages 284-304.
  • Handle: RePEc:cii:cepiie:2018-q4-156-20
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    Citations

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    Cited by:

    1. Guo, Yawei & Li, Jianping & Li, Yehua & You, Wanhai, 2021. "The roles of political risk and crude oil in stock market based on quantile cointegration approach: A comparative study in China and US," Energy Economics, Elsevier, vol. 97(C).
    2. Ahmed, Walid M.A., 2021. "How do Islamic equity markets respond to good and bad volatility of cryptocurrencies? The case of Bitcoin," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    3. Aliyu, Shehu Usman Rano, 2020. "What have we learnt from modelling stock returns in Nigeria: Higgledy-piggledy?," MPRA Paper 110382, University Library of Munich, Germany, revised 06 Jun 2021.
    4. Mohammad Enamul Hoque & Mohd Azlan Shah Zaidi & M. Kabir Hassan, 2021. "Geopolitical Uncertainties and Malaysian Stock Market Returns: Do Market Conditions Matter?," Mathematics, MDPI, vol. 9(19), pages 1-16, September.
    5. Balli, Faruk & de Bruin, Anne & Chowdhury, Md Iftekhar Hasan, 2019. "Spillovers and the determinants in Islamic equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    6. Ding, Qian & Huang, Jianbai & Gao, Wang & Zhang, Hongwei, 2022. "Does political risk matter for gold market fluctuations? A structural VAR analysis," Research in International Business and Finance, Elsevier, vol. 60(C).
    7. Salisu, Afees A. & Ndako, Umar B. & Adediran, Idris A. & Swaray, Raymond, 2020. "A fractional cointegration VAR analysis of Islamic stocks: A global perspective," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    8. Karim, Muhammad Mahmudul & Kawsar, Najmul Haque & Ariff, Mohamed & Masih, Mansur, 2022. "Does implied volatility (or fear index) affect Islamic stock returns and conventional stock returns differently? Wavelet-based granger-causality, asymmetric quantile regression and NARDL approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    9. Ahmed, Walid M.A., 2021. "Stock market reactions to upside and downside volatility of Bitcoin: A quantile analysis," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    10. Shehu U.R. Aliyu, 2019. "Do Presidential Elections Affect Stock Market Returns In Nigeria?," West African Journal of Monetary and Economic Integration, West African Monetary Institute, vol. 19(1), pages 40-56, June.
    11. Ahmed, Walid M.A., 2019. "Islamic and conventional equity markets: Two sides of the same coin, or not?," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 191-205.
    12. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    13. Zhou, Mei-Jing & Huang, Jian-Bai & Chen, Jin-Yu, 2022. "Time and frequency spillovers between political risk and the stock returns of China's rare earths," Resources Policy, Elsevier, vol. 75(C).
    14. 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

    Keywords

    Islamic equity markets; Conventional equity markets; Political risk; Dynamic panel analysis; GMM estimators;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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