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Are Islamic stocks subject to oil price risk exposure?

Author

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  • Ivan Mugarura Tusiime
  • Man Wang

Abstract

Purpose - The purpose of this paper is to examine whether oil price risk is a significant determinant of stock returns. Design/methodology/approach - Using monthly data on a sample of Islamic stocks listed on the New York Stock Exchanges and National Association of Securities Dealers Automated Quotations System (NASDAQ) over the period from January 1990 to December 2017, the study examines whether oil price risk is a significant determinant of stock returns using Fama–French–Carhart’s four-factor asset pricing model amplified with Brent oil price factor. Findings - The results from the cross-sectional regression analysis indicate that the extent of the exposure is significantly positive using a full sample period. Moreover, results from size and momentum factors are highly significant whereas book-to-market has no significant impact on Islamic stock returns. Research limitations/implications - The results support the concept for diversification in equity investment and are thus important for investors, analysts and policymakers. Originality/value - This study is the first of its kind to establish whether oil price risk is a factor that can determine returns of Islamic listed stocks using the most developed stock market in the world (New York Stock Exchanges and NASDAQ).

Suggested Citation

  • Ivan Mugarura Tusiime & Man Wang, 2020. "Are Islamic stocks subject to oil price risk exposure?," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 21(2), pages 181-200, May.
    • Handle: RePEc:eme:jrfpps:jrf-05-2019-0076
    DOI: 10.1108/JRF-05-2019-0076
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    Citations

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    Cited by:

    1. Lang, Qiaoqi & Ma, Feng & Mirza, Nawazish & Umar, Muhammad, 2023. "The interaction of climate risk and bank liquidity: An emerging market perspective for transitions to low carbon energy," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    2. Ghaemi Asl, Mahdi & Adekoya, Oluwasegun Babatunde & Rashidi, Muhammad Mahdi & Ghasemi Doudkanlou, Mohammad & Dolatabadi, Ali, 2022. "Forecast of Bayesian-based dynamic connectedness between oil market and Islamic stock indices of Islamic oil-exporting countries: Application of the cascade-forward backpropagation network," Resources Policy, Elsevier, vol. 77(C).
    3. Umar, Muhammad & Mirza, Nawazish & Hasnaoui, Jamila Abaidi & Rochoń, Małgorzata Porada, 2022. "The nexus of carbon emissions, oil price volatility, and human capital efficiency," Resources Policy, Elsevier, vol. 78(C).

    More about this item

    Keywords

    Financial crisis; January effect; Islamic stocks; Oil price risk exposure; G1; G11; G12;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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