Forecast of Bayesian-based dynamic connectedness between oil market and Islamic stock indices of Islamic oil-exporting countries: Application of the cascade-forward backpropagation network

Mahdi Ghaemi Asl, Oluwasegun Adekoya (), Muhammad Mahdi Rashidi, Mohammad Ghasemi Doudkanlou and Ali Dolatabadi

Resources Policy, 2022, vol. 77, issue C

Abstract: This paper is the first attempt to forecast the time-varying total return and volatility connectedness between the oil prices and the Islamic stock indices of seven oil-exporting countries, namely Iran, Oman, Saudi Arabia, Qatar, Kuwait, Bahrain, and United Arab Emirates. The entire analysis follows two main stages. The first carries out the connectedness analysis using the Bayesian time-varying parameter vector autoregressive (BTVP-VAR) model, while the second stage applies the training process in a cascade-forward backpropagation network (CFBPN) to five groups of input (spillover TO others, spillover FROM others, both spillovers TO & FROM others, raw returns, and raw volatilities, and ALL inputs) to forecast the dynamic total connectedness of returns/volatilities. The results of the connectedness analysis show that the Islamic stock index of Iran is not connected to the oil market and the Islamic stock indices of other Islamic oil-exporting countries. The Islamic stock indices of the United Arab Emirates and Saudi Arabia have a leadership role in the network. Besides, oil demonstrates a net receiving spillover status. In addition, connectedness increases during periods of crisis and significant oil price changes. Finally, the forecast analysis shows that the transmitted return and volatility spillovers from markets (TO spillovers) are the most important factor information in predicting the total connectedness of the network. The findings showcase important implications for investors, policy makers, and future studies.

Keywords: Oil market; Shariah-compliant stocks; Connectedness; BTVP-VAR; Cascade-forward backpropagation artificial neural network (search for similar items in EconPapers)
JEL-codes: C45 Q47 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:77:y:2022:i:c:s0301420722002264

DOI: 10.1016/j.resourpol.2022.102778

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