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Should Shariah-compliant investors include commodities in their portfolios? New evidence

Listed author(s):
  • Nagayev, Ruslan
  • Masih, Mansur

This paper investigates the links between price returns for seven commodities and Shariah-compliant equities (developed and emerging markets) over the period from January 1996 to April 2013. Employing the dynamic conditional correlation (DCC) M-GARCH methodology, we show that the correlations between commodity and stock markets evolve over time and are highly volatile, particularly during the financial crisis, which has played a key role, emphasizing the increased integration between commodity and stock markets, and underlining the financialization of commodity markets. However, in the last couple of years the correlation between commodities and equities seems to be decaying. Hence, Islamic investors hopefully could gain from the diversification benefits by the inclusion of commodities into their portfolios.

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File URL: https://mpra.ub.uni-muenchen.de/58851/1/MPRA_paper_58851.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 58851.

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Date of creation: 24 Aug 2013
Handle: RePEc:pra:mprapa:58851
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  1. Nazlioglu, Saban & Erdem, Cumhur & Soytas, Ugur, 2013. "Volatility spillover between oil and agricultural commodity markets," Energy Economics, Elsevier, vol. 36(C), pages 658-665.
  2. Girardi, Daniele, 2012. "Do financial investors affect the price of wheat?," MPRA Paper 40285, University Library of Munich, Germany.
  3. Silvennoinen, Annastiina & Thorp, Susan, 2013. "Financialization, crisis and commodity correlation dynamics," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 24(C), pages 42-65.
  4. Daskalaki, Charoula & Skiadopoulos, George, 2011. "Should investors include commodities in their portfolios after all? New evidence," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2606-2626, October.
  5. Daniele Girardi, 2012. "Do financial investors affect the price of wheat?," PSL Quarterly Review, Economia civile, vol. 65(260), pages 79-109.
  6. Roache, Shaun K. & Rossi, Marco, 2010. "The effects of economic news on commodity prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 377-385, August.
  7. Belousova, Julia & Dorfleitner, Gregor, 2012. "On the diversification benefits of commodities from the perspective of euro investors," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2455-2472.
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