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Exploring Efficiency, Co-integration, Causality and Volatility Clustering in Unrestricted and Islamic Portfolios

In: Islamic Capital Markets

Author

Listed:
  • Salman Ahmed Shaikh

    (Universiti Kebangsaan Malaysia)

  • Muhammad Hakimi Mohd. Shafiai

    (Universiti Kebangsaan Malaysia)

  • Abdul Ghafar Ismail

    (Universiti Kebangsaan Malaysia
    The Islamic Research and Training Institute)

  • Mohd. Adib Ismail

    (Universiti Kebangsaan Malaysia)

Abstract

Unlike unrestricted portfolios, Islamic portfolios have a narrow opportunity set for investment. They also face trading restrictions due to the prohibition of futures, short selling, options and day trading which can potentially create significant limits to arbitrage. In this study, we explore weak-form market efficiency in comparable unrestricted and Islamic portfolios. The study also investigates the existence of Autoregressive Conditional Heteroscedasticity (ARCH) effects in the returns series of unrestricted and Islamic portfolios in developed and emerging markets. Finally, we also investigate the existence of bi-directional causality between portfolios. From the runs test, we find that the returns of most indices are random, except for a few. Finally, we also find strong evidence for co-integration and causality in both directions between Islamic and unrestricted market portfolios.

Suggested Citation

  • Salman Ahmed Shaikh & Muhammad Hakimi Mohd. Shafiai & Abdul Ghafar Ismail & Mohd. Adib Ismail, 2016. "Exploring Efficiency, Co-integration, Causality and Volatility Clustering in Unrestricted and Islamic Portfolios," Palgrave CIBFR Studies in Islamic Finance, in: Nafis Alam & Syed Aun R. Rizvi (ed.), Islamic Capital Markets, chapter 0, pages 101-122, Palgrave Macmillan.
    • Handle: RePEc:pal:pcichp:978-3-319-33991-7_6
    DOI: 10.1007/978-3-319-33991-7_6
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