Risk transmission from the oil market to Islamic and conventional banks in oil-exporting and oil-importing countries

Tauhidul Tanin, Akram Hasanov, Mohammed Sharaf Mohsen Shaiban and Robert Brooks

Energy Economics, 2022, vol. 115, issue C

Abstract: This paper examines the volatility transmission from the oil market to Islamic banks' (IBs) share prices in two sets of data from oil exporters and importers. Our datasets comprise indices developed from banks' stocks of eight oil-exporting countries, including 41 IBs and 90 conventional banks (CBs), and five oil-importing countries, with 23 IBs and 63 CBs. We employ a trivariate version of the non-diagonal GARCH model, which allows for asymmetry in the variance-covariance matrix. Rather than relying on a single window, we perform the estimations through many recursive windows. The results reveal that oil volatility has higher predictive power (in majority recursive significant subsamples) in the exporter dataset compared to the importer dataset. We also find higher significant recursive subsamples for conventional counterparts in the same country. Holistically, IBs show greater bank stability during high oil price volatility horizons, a finding beneficial for policymakers, regulators, financial markets, IBs, and other concerned stakeholders.

Keywords: Islamic and conventional banks; Banks stock indices; Oil volatility transmission; Uncertainty; Oil-dependent and non-oil-dependent countries (search for similar items in EconPapers)
JEL-codes: C58 E44 F33 G23 Q43 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:115:y:2022:i:c:s0140988322005187

DOI: 10.1016/j.eneco.2022.106389

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