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

Author

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  • RIZVI , SYED AUN R
  • ARSHAD , SHAISTA

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

  • Rizvi , Syed Aun R & Arshad , Shaista, 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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    References listed on IDEAS

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    1. Pesaran, Bahram & Pesaran, M. Hashem, 2007. "Modelling Volatilities and Conditional Correlations in Futures Markets with a Multivariate t Distribution," IZA Discussion Papers 2906, Institute for the Study of Labor (IZA).
    2. Lanza, Alessandro & Manera, Matteo & McAleer, Michael, 2006. "Modeling dynamic conditional correlations in WTI oil forward and futures returns," Finance Research Letters, Elsevier, vol. 3(2), pages 114-132, June.
    3. M. Hashem Pesaran & Bahram Pesaran, 2007. "Volatilities and Conditional Correlations in Futures Markets with a Multivariate t Distribution," CESifo Working Paper Series 2056, CESifo Group Munich.
    4. Mohamed Albaity & Rubi Ahmad, 2008. "Performance of Syariah and Composite Indices: Evidence from Bursa Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 4(1), pages 23-43.
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    Cited by:

    1. 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.
    2. 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.
    3. repec:eee:finana:v:52:y:2017:i:c:p:9-26 is not listed on IDEAS

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