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Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis

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  • Dewandaru, Ginanjar
  • Rizvi, Syed Aun R.
  • Masih, Rumi
  • Masih, Mansur
  • Alhabshi, Syed Othman

Abstract

This study examines market co-movements in Islamic and mainstream equity markets across different regions in order to discover contagion during 9 major crises and to measure integration between markets. Using wavelet decomposition to unveil the multi-horizon nature of co-movement, we find that the shocks were transmitted via excessive linkages, while the recent subprime crisis reveals fundamentals-based contagion. While Islamic markets show traces of reduced exposure to the recent crisis owing to low leverage effect, their less diversified portfolio nature increases vulnerability to other crises. We generally find incomplete market integration, with relatively higher fundamental integration for Islamic markets which may be attributable to their real sector allocation nature.

Suggested Citation

  • Dewandaru, Ginanjar & Rizvi, Syed Aun R. & Masih, Rumi & Masih, Mansur & Alhabshi, Syed Othman, 2014. "Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis," Economic Systems, Elsevier, vol. 38(4), pages 553-571.
  • Handle: RePEc:eee:ecosys:v:38:y:2014:i:4:p:553-571
    DOI: 10.1016/j.ecosys.2014.05.003
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    Keywords

    Islamic finance; Shock transmission; Financial crisis; Contagion; Wavelet analysis;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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