Tail risk analysis of the S&P/OIC COMCEC 50 index

Mahmoud Bekri and Young Shin (Aaron) Kim

Borsa Istanbul Review, 2015, vol. 15, issue 1, 1-16

Abstract: The S&P/OIC COMCEC 50 Sharia index is a joint index created by the organization of the Islamic conference (OIC) member states' stock exchanges forum and S&P indices. It is a Sharia-compliant benchmark of the 50 leading companies from OIC-members. In Islamic finance, the portfolio manager (mudharib) is committed to use advanced models and reliable tools, according to the safety-first rule of investing (hifdh almal) Sharia rule. We suggest, based on the empirical properties of the daily data, three approaches for catching the fat tails of the S&P/OIC COMCEC 50, using a two-step process: (1) the time-series model, to explain the clustering of volatility and (2) the heavy-tailed model for the filtered residuals. We show how the use of the stable distributions achieves a great amelioration of the modelling of the S&P/OIC COMCEC 50, considering the different statistical tests and in terms of the assessment of the value of tail risk.

Keywords: Islamic stock index; Tail risk; Stable and tempered stable distributions (search for similar items in EconPapers)
JEL-codes: C G (search for similar items in EconPapers)
Date: 2015
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