Quantile relationship between Islamic and non-Islamic equity markets

In this study, we examine the quantile dependence between Islamic and non-Islamic equity returns using the cross-quantilogram approach. We find that Islamic and non-Islamic equity markets are predominantly independent of each other when both markets are in normal (middle quantile) and bullish (upper quantile) states. However, when the markets are in a bearish state (lower quantile), a positive dependence emerges, which becomes stronger and persistent once the uncertainty measures are controlled for and during financial crises. We also show that investors can derive diversification and hedging benefits by strategically combining Islamic and non-Islamic equities in their portfolios.