Do Islamic stock indexes outperform conventional stock indexes? A state space modeling approach

Aymen Ben Rejeb and Arfaoui Mongi ()

European Journal of Management and Business Economics, 2019, vol. 28, issue 3, 301-322

Abstract: Purpose - The purpose of this paper is to investigate whether Islamic stock indexes outperform conventional stock indexes, in terms of informational efficiency and risk, during the recent financial instability period. Design/methodology/approach - The paper uses a state space model combined with a standard GARCH(1,1) specification while taking into account structural breakpoints. The authors allow for efficiency and volatility spillovers to be time-varying and consider break dates to locate periods of financial instability. Findings - Empirical results show that Islamic stock indexes are more volatile than their conventional counterparts and are not totally immune to the global financial crisis. As regards of the informational efficiency, the results show that the Islamic stock indexes are more efficient than the conventional stock indexes. Practical implications - Resulting evidence of this paper has several implications for international investors who wish to invest in Islamic and/or conventional stock markets. Policy makers and even academics andShariasresearchers should as well take preventive measures in order to ensure the stability of Islamic stock markets during turmoil periods. Overall, prudent risk management and precocious financial practices are relevant and crucial for both Islamic and conventional financial markets. Originality/value - The originality of this study is performed by the use of time-varying models for volatility spillovers and informational efficiency. It considers structural break dates that think about the dynamic effect of informational flows on stock markets. The study was developed in a global framework using international data. The global analysis allows avoiding country specific effects.

Keywords: Subprime crisis; Conditional volatility; Informational efficiency; Islamic stock markets; Financial fragility; F15; C32; C58; G14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ejmbep:ejmbe-08-2018-0088

DOI: 10.1108/EJMBE-08-2018-0088

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