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Multivariate Co-movement Between Islamic Stock and Bond Markets Among the GCC: A Wavelet-Based View

Author

Listed:
  • Chaker Aloui

    (King Saud University)

  • Rania Jammazi

    (IPAG Business School
    Manouba University)

  • Hela Ben Hamida

    (Imam Muhammad Ibn Saud Islamic University (IMSIU))

Abstract

In this study, we investigate the connectedness between sharia stock index and three Islamic bond yields within a global perspective of the Gulf Cooperation Council Islamic financial markets. The main novelty of the present study is that we extend previous studies by performing three wavelet variants in bivariate and multivariate frameworks, namely the wavelet multiple correlation, the wavelet multiple cross correlation and wavelet cohesion. The findings point out a significant changing pattern in the dynamic linkage between sharia stocks and Islamic bond yields in the time-frequency domain. A strong positive association is evidenced in the short horizons and a negative linkage is branded for longer time-scales. Some resemblances are found for the wavelet cohesion corroborating the existence of potential portfolios’ diversification opportunities at lower frequencies. The multivariate wavelet cross correlation unveils that the intensity of the co-movement reaches its zenith at high frequencies. These results are not similar to the bivariate wavelet coherence but are coincident with the wavelet cohesion approach, which may be due to the difference in dimensionality of the wavelet approaches. The implications of this study will be useful for Islamic portfolio managers, international investors and market regulators in better encircling the best ways to adopt a proactive knowledge of Islamic financial markets behavior.

Suggested Citation

  • Chaker Aloui & Rania Jammazi & Hela Ben Hamida, 2018. "Multivariate Co-movement Between Islamic Stock and Bond Markets Among the GCC: A Wavelet-Based View," Computational Economics, Springer;Society for Computational Economics, vol. 52(2), pages 603-626, August.
    • Handle: RePEc:kap:compec:v:52:y:2018:i:2:d:10.1007_s10614-017-9703-7
    DOI: 10.1007/s10614-017-9703-7
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    2. Lahmiri, Salim & Bekiros, Stelios, 2019. "Decomposing the persistence structure of Islamic and green crypto-currencies with nonlinear stepwise filtering," Chaos, Solitons & Fractals, Elsevier, vol. 127(C), pages 334-341.
    3. Paltrinieri, Andrea & Hassan, Mohammad Kabir & Bahoo, Salman & Khan, Ashraf, 2023. "A bibliometric review of sukuk literature," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 897-918.
    4. Hasan, Md. Bokhtiar & Kabir Hassan, M. & Gider, Zeynullah & Tahsin Rafia, Humaira & Rashid, Mamunur, 2023. "Searching hedging instruments against diverse global risks and uncertainties," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    5. Rahman, Md Lutfur & Hedström, Axel & Uddin, Gazi Salah & Kang, Sang Hoon, 2021. "Quantile relationship between Islamic and non-Islamic equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Sahabuddin, Mohammad & Muhammad, Junaina & Yahya, Mohamed Hisham & Mohammed Shah, Sabarina, 2020. "Co-movements between Islamic and Conventional Stock Markets: An Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 27-40.
    7. Hasan, Md. Bokhtiar & Hassan, M. Kabir & Alhomaidi, Asem, 2023. "How do sectoral Islamic equity markets react to geopolitical risk, economic policy uncertainty, and oil price shocks?," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    8. Billah, Mabruk & Elsayed, Ahmed H. & Hadhri, Sinda, 2023. "Asymmetric relationship between green bonds and Sukuk markets: The role of global risk factors," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    9. Hasan, Md. Bokhtiar & Hassan, M. Kabir & Karim, Zulkefly Abdul & Rashid, Md. Mamunur, 2022. "Exploring the hedge and safe haven properties of cryptocurrency in policy uncertainty," Finance Research Letters, Elsevier, vol. 46(PA).

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    More about this item

    Keywords

    Multiple wavelet correlation; Cross correlation; Wavelet coherence; Sharia stocks; Islamic bonds;
    All these keywords.

    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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