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Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis

Ginanjar Dewandaru, Syed Aun R. Rizvi (), Rumi Masih, Mansur Masih and Syed Othman Alhabshi ()
Authors registered in the RePEc Author Service: Abul Mansur Mohammed Masih

Economic Systems, 2014, vol. 38, issue 4, 553-571

Abstract: This study examines market co-movements in Islamic and mainstream equity markets across different regions in order to discover contagion during 9 major crises and to measure integration between markets. Using wavelet decomposition to unveil the multi-horizon nature of co-movement, we find that the shocks were transmitted via excessive linkages, while the recent subprime crisis reveals fundamentals-based contagion. While Islamic markets show traces of reduced exposure to the recent crisis owing to low leverage effect, their less diversified portfolio nature increases vulnerability to other crises. We generally find incomplete market integration, with relatively higher fundamental integration for Islamic markets which may be attributable to their real sector allocation nature.

Keywords: Islamic finance; Shock transmission; Financial crisis; Contagion; Wavelet analysis (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 G15 (search for similar items in EconPapers)
Date: 2014
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