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An Empirical Study of Islamic Equity as a Better Alternative during Crisis Using Multivariate GARCH DCC

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  • SYED AUN R RIZVI
  • SHAISTA ARSHAD

Abstract

Risk Sharing is the core of the Islamic finance, the closest modern equivalent being equity investments. Through the decades of Islamic Finance development scholars have stressed on equity as the most beneficial financial mechanism while most accept modern joint-stock companies as quasi Mush rakah and Mu rabah forms, but this segment is still small in Islamic finance. Multitude of reasons contributes to it, primarily, the risk averseness and myth of equities as more risky alternate. This paper attempts to investigate this myth utilizing MGARCH DCC method, by studying the volatilities and correlations of Islamic indices over a period of twelve years. The findings are promising, suggesting a low moving correlation between the conventional and Islamic indices. The results substantiate the authors’ argument, that during crisis, Islamic indices provide though not complete, but partial insulation, thus a safer haven. This bodes well for a hugely untapped Islamic alternate investment avenue for exploration.

Suggested Citation

  • Syed Aun R Rizvi & Shaista Arshad, 2014. "An Empirical Study of Islamic Equity as a Better Alternative during Crisis Using Multivariate GARCH DCC," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 22, pages 159-184.
  • Handle: RePEc:ris:isecst:0006
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    Cited by:

    1. Balli, Faruk & Billah, Mabruk & Balli, Hatice Ozer & De Bruin, Anne, 2022. "Spillovers between Sukuks and Shariah-compliant equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    2. Nevi Danila & Noor Azlinna Azizan & Eddy Suprihadi & Bunyamin Bunyamin, 2024. "Dynamic Co-movement and Volatility Spillover Effect Between Sukuk and Conventional Bonds: A Comparison Study Between ASEAN and GCC," Global Business Review, International Management Institute, vol. 25(6), pages 1655-1673, December.
    3. Lim, Siok Jin, 2020. "Portfolio diversification opportunities for U.S. Islamic investors with its trading partners when the world catches a cold: A Multivariate-GARCH and wavelet approach," MPRA Paper 103295, University Library of Munich, Germany.
    4. repec:osf:osfxxx:t5jeh_v1 is not listed on IDEAS
    5. Hanif, Muhammad & Zafar, Kiran, 2020. "Developments in Islamic Finance Literature: Evidence from Specialized Journals," OSF Preprints t5jeh, Center for Open Science.
    6. Shahzad, Syed Jawad Hussain & Ferrer, Román & Ballester, Laura & Umar, Zaghum, 2017. "Risk transmission between Islamic and conventional stock markets: A return and volatility spillover analysis," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 9-26.
    7. Md Abu Hasan, 2019. "Co-Movement and Volatility Transmission between Islamic and Conventional Equity Index in Bangladesh," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 26, pages 43-71.
    8. Elsayed, Ahmed H. & Ahmed, Habib & Husam Helmi, Mohamad, 2023. "Determinants of financial stability and risk transmission in dual financial system: Evidence from the COVID pandemic," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    9. Muhammad Anas & Ghulam Mujtaba & Sadaf Nayyar & Saira Ashfaq, 2020. "Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets," JRFM, MDPI, vol. 13(7), pages 1-27, July.
    10. Nevi Danila, 2023. "Spillover of volatility among financial instruments: ASEAN-5 and GCC market study," PLOS ONE, Public Library of Science, vol. 18(10), pages 1-21, October.
    11. Muhammad Hanif & Kiran Zafar, 2020. "Developments in Islamic Finance Literature: Evidence from Specialized Journals التطورات في أدبيات التمويل الإسلامي: أدلة من دوريات متخصصة," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(2), pages 3-23, July.
    12. Choi, Sun-Yong & Phiri, Andrew & Teplova, Tamara & Umar, Zaghum, 2024. "Connectedness between (un)conventional monetary policy and islamic and advanced equity markets: A returns and volatility spillover analysis," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 348-363.
    13. Tetsuji Tanaka & Jin Guo, 2020. "International price volatility transmission and structural change: a market connectivity analysis in the beef sector," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-13, December.
    14. Yunus Kilic & Mehmet Fatih Bugan, 2016. "Are Islamic Equity Markets “Safe Havens”? Testing the Contagion Effect using DCC-GARCH," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 167-176, October.
    15. Ahmed, Habib & Elsayed, Ahmed H., 2019. "Are Islamic and conventional capital markets decoupled? Evidence from stock and bonds/sukuk markets in Malaysia," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 56-66.
    16. Ibrahim, Mansor H., 2015. "Issues in Islamic banking and finance: Islamic banks, Shari’ah-compliant investment and sukuk," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 185-191.
    17. Sylva Alif Rusmita & Putri Swastika, 2021. "Do Islamic stock indexes integrated with conventional stock indexes?: Evidence from Indonesia and Malaysia," Asian Management and Business Review, Master of Management, Department of Management, Faculty of Business and Economics Universitas Islam Indonesia, vol. 1(1), pages 57-67.
    18. Abdelsalam, Omneya & Ahelegbey, Daniel Felix & Essanaani, Yassine, 2024. "The nexus of conventional, religious and ethical indexes during crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 95(C).
    19. Audi, Marc & Sadiq, Azhar & Ali, Amjad, 2021. "Performance Evaluation of Islamic and Non-Islamic Equity and Bonds Indices: Evidence from selected Emerging and Developed Countries," MPRA Paper 109866, University Library of Munich, Germany.
    20. Shafiu Ibrahim Abdullahi, 2021. "Islamic equities and COVID-19 pandemic: measuring Islamic stock indices correlation and volatility in period of crisis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 29, pages 50-66.
    21. Haddad, Hedi Ben & Mezghani, Imed & Al Dohaiman, Mohammed, 2020. "Common shocks, common transmission mechanisms and time-varying connectedness among Dow Jones Islamic stock market indices and global risk factors," Economic Systems, Elsevier, vol. 44(2).

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