Role of Islamic Banking during COVID-19 on Political and Financial Events: Application of Impulse Indicator Saturation

Ghulam Ghouse, Aribah Aslam and Muhammad Bhatti
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Ghulam Ghouse: Economics Department, University of Lahore, Lahore 55150, Pakistan
Aribah Aslam: Economics Department, University of Lahore, Lahore 55150, Pakistan

Sustainability, 2021, vol. 13, issue 21, 1-17

Abstract: This paper attempts to detect the unavoidable impacts of COVID-19 on geopolitical and financial events related to Islamic banking and the finance sector in Pakistan. It considers only those major events that triggered imbalances in the equity prices of selected Islamic banks. Employed here is the GARCH model, used to predict the volatility series using daily data from January 2007 to July 2020. The Impulse Indicator Saturation (IIS) helps to identify the structural breaks due to COVID-19, as well as the effects of political and financial events on the returns and volatility series of Islamic banks. The results indicate that all the events due to COVID-19 are significant. While 19 out of 21 political and financial events impacted the returns and volatility series, there were only 2 political events out of 18 that showed no significant effect on the returns and the volatility series. The state’s and Islamic banks’ policymakers can use these results to build an effective and sustainable financial policy regarding Islamic finance and the banking sector.

Keywords: COVID-19; Pakistan; PSX; KSE 100; Islamic banking and finance; volatility; GARCH and IIS procedure (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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