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Are Islamic stock indexes exposed to systemic risk? Multivariate GARCH estimation of CoVaR

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  • Trabelsi, Nader
  • Naifar, Nader

Abstract

The main objective of this paper is to assess the exposure of Islamic stock indexes to systemic tail events. We use Conditional Value-at-Risk (CoVaR) and Delta CoVaR measures as developed by Adrian and Brunnermeier (2011) and a sample of Islamic and conventional stock indexes, from various developed and emerging markets, during the period September 2005 to March 2015. The empirical results reveal that the systemic risk has a moderate adverse effect on Islamic indexes, with a lower level in Gulf Cooperation Council countries (GCC hereafter). The findings also show the Asian stock indexes can be considered as effective hedge assets, after the global financial crisis (GFC hereafter). Furthermore, the empirical reveal that portfolio including Islamic stock indexes performs better than a benchmark portfolio in turmoil periods. These findings have several implications in financial decisions including the strategy of stability and asset allocation.

Suggested Citation

  • Trabelsi, Nader & Naifar, Nader, 2017. "Are Islamic stock indexes exposed to systemic risk? Multivariate GARCH estimation of CoVaR," Research in International Business and Finance, Elsevier, vol. 42(C), pages 727-744.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:727-744
    DOI: 10.1016/j.ribaf.2017.07.013
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    More about this item

    Keywords

    Systemic risk; CoVaR; Islamic stock indexes; Hedging strategy;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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