How do sectoral Islamic equity markets react to geopolitical risk, economic policy uncertainty, and oil price shocks?

Md. Bokhtiar Hasan, M. Kabir Hassan and Asem Alhomaidi

The Journal of Economic Asymmetries, 2023, vol. 28, issue C

Abstract: This study explores the impact of three major risk and uncertainty indices (Geopolitical Risk (GPR), Economic Policy Uncertainty (EPU), and Oil Market Volatility (OVX)) on the Dow Jones Islamic Market (DJIM) World and the ten major sectoral Islamic equity indices. The investigation further evaluates whether the impact of these uncertainties varies between Islamic sectoral indices and the global benchmark. Our time-varying analysis shows that most Islamic equity indices are more resilient in hedging against GPR and EPU shocks compared to OVX shocks. Furthermore, the Quantile-on-Quantile results establish a positive correlation between DJIM World and most Islamic equity indices with GPR, demonstrating their robust capabilities to hedge against GPR shocks. These hedging abilities are more pronounced in the consumer goods, oil & gas, and financial sectors. The dependence structures between extreme EPU shocks and the DJIM world and consumer goods, financials, healthcare, and industrial sectors are positive only in bearish conditions, suggesting hedging benefits are predominantly limited to lower quantiles. Yet, the basic materials and oil & gas sectors can hedge EPU shocks better than the DJIM world and other sectors, depending on market states. Notably, no Islamic equity indices show resilience against OVX shocks. Our findings have prominent portfolio risk management and policy implications for investors and policymakers. These findings hold significant implications for portfolio risk management and policy strategies for investors and policymakers.

Keywords: Uncertainty factors; Quantile-on-quantile; Time-varying analysis; Hedge; Sectoral islamic equity indices (search for similar items in EconPapers)
JEL-codes: C22 C58 D81 G11 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:28:y:2023:i:c:s1703494923000452

DOI: 10.1016/j.jeca.2023.e00333

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