IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/56957.html
   My bibliography  Save this paper

The Impact of Crude Oil Price on Islamic Stock Indices of South East Asian (SEA) Countries: A Comparative Analysis

Author

Listed:
  • Abdullah, Ahmad Monir
  • Saiti, Buerhan
  • Masih, Abul Mansur M.

Abstract

An understanding of how volatilities of and correlations between commodity returns and Islamic stock indices change over time including their directions and size are of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against unforeseen risks. This paper is the first attempt to add value to the existing literature by empirically testing for the ‘time-varying’ and ‘scale dependent’ volatilities of and correlations between the selected Islamic stock indices of South East Asian countries and selected commodities for enhancing portfolio diversification benefits. The methodologies appropriate to achieving the objectives were the recently introduced dynamic conditional correlations and wavelet decompositions. Our findings tend to suggest that there is a theoretical relationship between the selected Islamic stock indices and the selected commodities and that the Islamic stock indices of Singapore, Philippines and Indonesia are leading the other Islamic stock indices and the commodities (as evidenced in the Vector Error-Correction models). Consistent with these results, our analysis based on the application of the recent wavelet technique MODWT tends to indicate that the Singapore Islamic index is leading the other Islamic indices and the commodities. From the point of view of portfolio diversification benefits based on the extent of dynamic correlations between variables, our results tend to suggest that an investor should be aware that the Philippine Islamic stock index is less correlated with the crude oil in the short run (as evidenced in the continuous wavelet transform analysis) and that an investor holding the crude oil can gain by including the Malaysian Islamic stock index in his/her portfolio (as evidenced in the Dynamic conditional correlations analysis).

Suggested Citation

  • Abdullah, Ahmad Monir & Saiti, Buerhan & Masih, Abul Mansur M., 2014. "The Impact of Crude Oil Price on Islamic Stock Indices of South East Asian (SEA) Countries: A Comparative Analysis," MPRA Paper 56957, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:56957
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/56957/1/MPRA_paper_56957.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. D. S. Prasada Rao & Bart van Ark, 2013. "Introduction," Chapters,in: World Economic Performance, chapter 1, pages 1-6 Edward Elgar Publishing.
    2. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
    3. Vacha, Lukas & Barunik, Jozef, 2012. "Co-movement of energy commodities revisited: Evidence from wavelet coherence analysis," Energy Economics, Elsevier, vol. 34(1), pages 241-247.
    4. Jammazi, Rania & Aloui, Chaker, 2010. "Wavelet decomposition and regime shifts: Assessing the effects of crude oil shocks on stock market returns," Energy Policy, Elsevier, vol. 38(3), pages 1415-1435, March.
    5. Andrew C. Worthington & Mosayeb Pahlavani, 2007. "Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(4), pages 259-262.
    6. Baffes, John, 2007. "Oil spills on other commodities," Resources Policy, Elsevier, vol. 32(3), pages 126-134, September.
    7. Mara Madaleno & Carlos Pinho, 2012. "International stock market indices comovements: a new look," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(1), pages 89-102, January.
    8. Gallegati, Marco, 2008. "Wavelet analysis of stock returns and aggregate economic activity," Computational Statistics & Data Analysis, Elsevier, vol. 52(6), pages 3061-3074, February.
    9. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gourène, Grakolet Arnold Zamereith & Mendy, Pierre, 2015. "Oil Prices and African Stock Markets Co-movement: A Time and Frequency Analysis," MPRA Paper 75852, University Library of Munich, Germany.

    More about this item

    Keywords

    Commodity; Islamic Stock Index Returns (ISIR); MODWT; CWT; DCC-MGARCH; Diversification; Causality;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:56957. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.