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Islamic financial markets and global crises: Contagion or decoupling?

Dimitris Kenourgios, Nader Naifar and Dimitrios Dimitriou ()

Economic Modelling, 2016, vol. 57, issue C, 36-46

Abstract: This paper investigates the contagion effects of the global financial crisis (GFC) and Eurozone sovereign debt crisis (ESDC) on Islamic equity and bond markets. Using a sample of Islamic stock indices from various developed and emerging markets and the global Islamic stock and bond (sukuk) indices, we explore asymmetric conditional correlation dynamics across stable and crisis periods and across the two crises. The results fail to provide strong contagion evidence between conventional and Islamic equity and bond indices, supporting the decoupling hypothesis of the Islamic securities. Our findings imply that Islamic equities and bonds may provide a cushion against risk and instability, particularly in periods of turmoil. The small number of contagion cases mostly relates to the ESDC and developed Islamic stock indices. The findings also show that the Islamic emerging stock indices in the BRICS provide the most effective international portfolio diversification benefits compared to the Islamic developed indices.

Keywords: Islamic finance; Financial contagion; Global financial crisis; Eurozone sovereign debt crisis; Dynamic conditional correlation (search for similar items in EconPapers)
JEL-codes: C32 G11 G12 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:57:y:2016:i:c:p:36-46

DOI: 10.1016/j.econmod.2016.04.014

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