Islamic stocks, conventional stocks, and crude oil: Directional volatility spillover analysis in BRICS

Kamrul Hassan, Ariful Hoque, Muammer Wali and Dominic Gasbarro

Energy Economics, 2020, vol. 92, issue C

Abstract: This paper uses threshold GARCH (TGARCH) and generalised forecast error variance decomposition to compute time domain and frequency domain volatility spillover. The spillover technique is then applied to Islamic and conventional stock indices and crude oil in BRICS countries (Brazil, Russia, India, China, and South Africa), thus informing investors about the magnitude and speed of the volatility spillover. We find that the total volatility spillover is driven mainly by a long-term component. Accordingly, these assets are suitable for investors with short- and medium-term investment horizons. However, analysis reveals that volatility spillover magnitude and speed increase substantially during the global financial crisis, suggesting that investors in Brazil, Russia, and South Africa with stocks in their portfolio should rebalance promptly. Dynamic covariance analysis shows that covariance between Islamic and conventional stock index returns is the highest and exhibit a significant increase during the crisis period.

Keywords: Conventional stock index; Dynamic covariance; Financial crisis; Frequency domain spillover; Islamic stock index; Time domain spillover; Volatility (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 C61 G11 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:92:y:2020:i:c:s014098832030325x

DOI: 10.1016/j.eneco.2020.104985

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