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Exploring portfolio diversification opportunities in Islamic capital markets through bitcoin: evidence from MGARCH-DCC and Wavelet approaches

Author

Listed:
  • Lim, Siok Jin
  • Masih, Mansur

Abstract

Bitcoin is a form of digital currency that is circulating without the backing of any central bank and monitoring authority. Therefore, sceptics regularly question the status of Bitcoin as a legal tender. Nevertheless, due to increasing popularity and importance of Bitcoin, practitioners and researchers have recently started to assess Bitcoin from the perspective of business, economics and finance. This paper explores possibilities of using Bitcoin as a portfolio optimisation strategy for Islamic fund managers. We use three recent and appropriate methodologies: M-GARCH-DCC, Continuous Wavelet Transforms (CWT), and Maximum Overlap Discrete Wavelet Transform (MODWT). The results significantly tend to indicate that Bitcoin and Shari’ah stock indices are lowly and negatively correlated, suggesting that Islamic stock investors can benefit from diversification with Bitcoin and that the fundamentals of such crypto-currencies can be further investigated for the benefit of Islamic capital markets.

Suggested Citation

  • Lim, Siok Jin & Masih, Mansur, 2017. "Exploring portfolio diversification opportunities in Islamic capital markets through bitcoin: evidence from MGARCH-DCC and Wavelet approaches," MPRA Paper 79752, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79752
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Islamic stocks; Bitcoin; portfolio diversification; MGARCH-DCC; Wavelets;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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