Measuring volatility persistence for conventional and Islamic banks: An FI-EGARCH approach

Mohamed Fakhfekh, Nejib Hachicha, Fredj Jawadi, Nadhem Selmi and Abdoulkarim Idi Cheffou

Emerging Markets Review, 2016, vol. 27, issue C, 84-99

Abstract: This paper studies the volatility dynamics of conventional and Islamic banks from the Gulf Cooperation Council (G.C.C) countries during calm and crisis periods, providing a dual comparison in time and space. In particular, it proposes an empirical measure of volatility persistence using the FIEGARCH (Fractionally Integrated Exponential Generalized Auto-Regressive Conditional Heteroscedasticity) model. This specification is useful for reproducing further asymmetry in volatility dynamics and provides a direct measure of long-term volatility dependence. Our findings point to three interesting findings. First, volatility exhibits asymmetry as bad news has a significantly higher impact on volatility than positive news. Second, bad news affects the volatility of conventional banks more strongly than that of Islamic banks. Third, it seems that following a shock, volatility is more persistent in conventional banks than in Islamic Banks. Accordingly, Islamic banks are more resilient than conventional banks, but the degree of resilience is somewhat heterogeneous and sample dependent. Thus, while this may appear to suggest that we could regulate the conventional bank system using the industry rules of Islamic banks, it is worth noting that Islamic banks in Saudi Arabia tend to provide the most resilient Islamic Bank benchmark model.

Keywords: Islamic and conventional banks; Volatility; Persistence; Asymmetry; FIEGARCH models (search for similar items in EconPapers)
JEL-codes: C20 G10 G21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:27:y:2016:i:c:p:84-99

DOI: 10.1016/j.ememar.2016.03.004

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