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Oil shocks and the Islamic financial market: Evidence from a causality-in-quantile approach

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  • Raheem, Ibrahim D.
  • le Roux, Sara
  • Rehman, Mobeen Ur

Abstract

This study examines the nonlinear relationship between Islamic stock indices and oil shocks. Nonlinearity is viewed from the prism of nonparametric causality-in-quantile, and oil price is decomposed into demand, supply, and risk. The objective of this study is to examine the causality between sectoral Islamic stocks and oil shocks. Using a dataset for ten sectoral Islamic stock indices, we show that causality between the variables of interest is heterogenous across (i) measures of shocks (i.e., demand, supply, or risk), (ii) types of the sector (i.e., the ten sectors), (iii) state of the market (bear, normal, bull) and (iv) model specifications (mean vs. variance equation). We find that for the US, sectoral returns, demand and risk shocks affect Industrial, Information Technology, and ESG sectors across all quantiles, while supply shocks cause changes across normal market conditions. The US healthcare sector remains insensitive and the communications sector is affected only across extreme quantiles. Each oil shock exhibits a significant causal effect on Asian Pacific and Emerging Islamic markets consistently across all quantiles. Developed and European Islamic markets remain sensitive to risk-related shocks. Policy implications of these results are discussed.

Suggested Citation

  • Raheem, Ibrahim D. & le Roux, Sara & Rehman, Mobeen Ur, 2024. "Oil shocks and the Islamic financial market: Evidence from a causality-in-quantile approach," International Economics, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:inteco:v:180:y:2024:i:c:s2110701724000829
    DOI: 10.1016/j.inteco.2024.100559
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    More about this item

    Keywords

    Islamic stocks; Oil price shocks; And causality-in-quantile;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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