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The diversification benefits from Islamic investment during the financial turmoil: the case for the US-based equity investors

Saiti, Buerhan and Bacha, Obiyathulla Ismath and Masih, Mansur (2014) The diversification benefits from Islamic investment during the financial turmoil: the case for the US-based equity investors. Borsa Istanbul Review, 14 (4). pp. 196-211. ISSN 2214-8450

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Abstract

A major issue in both Islamic finance and conventional finance is whether the shocks to the volatilities in the asset returns are substitutes or complements in terms of taking risk. An understanding of how volatilities of and correlations between asset returns change over time including their directions (positive or negative) and size (stronger or weaker) is of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against unforeseen risks. This study is the first attempt to advance the frontier of knowledge particularly in the fast growing field of Islamic Finance through the application of the recently-developed Dynamic Multivariate GARCH approach. Our study is focused on investigating whether Islamic stock indices provide special avenue for the US-based investors. Our findings based on the Dynamic Conditional Correlation (DCC) tend to suggest: both the conventional and Islamic MSCI indices of Japan, GCC ex-Saudi, Indonesia, Malaysia and Taiwan provide better diversification benefits compared to Korea, Hong Kong, China and Turkey. It tends to suggest that the Islamic countries provide better diversification benefits compared to the Far East countries with strong policy implications for the domestic and international investors in their portfolio diversification for hedging against unforeseen risks.

Item Type: Article (Journal)
Additional Information: 7451/44498
Uncontrolled Keywords: Dynamic Conditional Correlations; Multivariate GARCH; Conventional and Islamic stock
Subjects: H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes: Institute of Islamic Banking & Finance (IIiBF)
Depositing User: ASSOC PROF DR BUERHAN SAITI
Date Deposited: 07 Sep 2015 10:51
Last Modified: 24 May 2018 12:09
URI: http://irep.iium.edu.my/id/eprint/44498

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