Reevaluating the risk minimization utility of Islamic stocks and bonds (Sukuk) in international financial markets

Sifat, Imtiaz and Mohamad, Azhar and Zhang, Hengchao and Molyneux, Philip (2022) Reevaluating the risk minimization utility of Islamic stocks and bonds (Sukuk) in international financial markets. The European Journal of Finance. pp. 1-23. ISSN 1351-847X E-ISSN 1466-4364 (In Press)

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Abstract

We examine the risk minimization utility of Islamic stock and Sukuk (bond) indices by studying their linkages against traditional global counterparts. We first employ an asymmetric power ARCH-based ADCC model on an extended dataset employed by Kenourgios et al. (2016). Our sample ranges from July 2007 to June 2021 covering the Global Financial Crisis (GFC), the European Sovereign Debt Crisis (ESDC), and the COVID-19 pandemic. Econometric tests suggest strong evidence of coupling in the bulk of Islamic equity indices. A handful of emerging market indices constitute exceptions. Qualitatively similar results emerge from time–frequency analysis via wavelet tools, revealing pervasive coupling in both returns and volatility series. The linkages are scale-dependent in only a few pairs. In contrast, Sukuk indices are uncoupled from their global fixed income counterparts and relevant risky debt portfolios. In sum, the risk-return characteristics of Islamic equities (especially in developed economies) remain coupled to major global benchmarks and therefore are unlikely to appeal as safe haven candidates. The converse applies to Sukuk, which promises potential portfolio diversification benefits and safe haven status in ‘normal’ and crisis periods.

Item Type:	Article (Journal)
Uncontrolled Keywords:	COVID-19; Financial Crisis; Islamic stocks; Islamic assets; Shariah-compliant investment; safe haven; financial risk management
Subjects:	H Social Sciences > HB Economic Theory > HB131 Methodology.Mathematical economics. Quantitative methods H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences Kulliyyah of Economics and Management Sciences > Department of Economics Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr. HENGCHAO ZHANG
Date Deposited:	10 Feb 2022 17:16
Last Modified:	10 Feb 2022 17:16
URI:	http://irep.iium.edu.my/id/eprint/96692

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