Are shariah (islamic) stock market returns stable ? evidence from the select islamic stock indices of emerging markets, USA, UK and Japan

This paper makes an attempt to address the following questions about four Islamic indices :(i) are the Islamic indices returns stable over time? (ii) Is there any covariance existing between the Islamic indices? (iv) Which Islamic index is dominant among the four indices? The wavelet approach (DWT and CWT) was used for the analysis. The findings found the returns for four Islamic indices relatively stable excepting the subprime crisis period 2008-2009. The analysis through discrete wavelet (DWT) generally found that the estimated beta and r-squares for five different dimension of time scales indicated that the beta is non monotonic. The volatility however, increases over time which further confirmed that shariah (Islamic) indices were still exposed to the economic uncertainty as the time frame increases. Wavelet coherence (CWT) specifically found the existence of causality elements between the indices as well as high covariance existing among these four indices which is represented by red colors. Although not always Islamic emerging market was leading, but still there are some evidences that Islamic emerging markets have had their own independence from the western economy. Finally, this analysis failed to deny the dominance of Islamic US index as the leader among the Islamic markets.