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How do Islamic versus conventional equity markets react to political risk? Dynamic panel evidence

Walid M.A. Ahmed

International Economics, 2018, issue 156, 284-304

Abstract: This study aims to assess the differential impact of political risk on Sharia-compliant vis-à-vis conventional stocks. For comparison purposes, the analysis is carried out within the separate contexts of developed and developing economies, employing a framework that controls for an array of relevant influences and risk factors. Based on dynamic panel GMM techniques, the results suggest that conventional equity markets of developed countries prove much more sensitive to political uncertainty than do their Islamic counterparts. In developing countries, political risk tends to have a substantial effect on both conventional and Islamic markets, with such an effect being more pronounced in the former than in the latter. Additionally, Islamic equity markets appear to be neither immune to global sources of risk nor sheltered from contagion effects triggered by financial and economic crises. Overall, the present findings lend no support to the decoupling hypothesis between Islamic and conventional equities.

Keywords: Islamic equity markets; Conventional equity markets; Political risk; Dynamic panel analysis; GMM estimators (search for similar items in EconPapers)
JEL-codes: F21 F30 F52 G12 G15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:cii:cepiie:2018-q4-156-20