Asymmetric impact of oil price on Islamic sectoral stocks

Ramez Badeeb and Hooi Hooi Lean ()

Energy Economics, 2018, vol. 71, issue C, 128-139

Abstract: This paper extends the literature concerning non-linearity in oil-stock relationships by putting forward a new paradigm of sectoral and Islamic elements. We explore the asymmetric impact of oil price on Islamic stocks from a sectoral perspective using non-linear Autoregressive Distributed Lag cointegration methodology. The main advantage of this methodology relies on its ability to simultaneously capture the short- and long-run asymmetries through both positive and negative oil price shocks. Our results show weak linkages between oil price changes and the Islamic composite index. However, the nature and sensitivity of the reaction of stock prices to oil price shocks vary considerably across different sectors. In the longer horizon, the relationships between oil price and many Islamic sectoral stocks tend to follow a nonlinear pattern. Furthermore, the behavior of the real economic sectors indices reflects the performance of the composite index that is oil price-resistant. During the turbulent period after 2008, the response of the sectoral indices to oil price movements witnessed notable changes where the sectoral gains from oil price drop that have been observed during the period of study have been found to diminish after 2008. Our finding is in line with the argument that the Islamic composite index is grounded more on and within the real sectors. These findings are robust when considering different oil proxies and different data time-frequencies.

Keywords: Oil price; Islamic stocks; Sectoral; Non-linear ARDL (search for similar items in EconPapers)
JEL-codes: C22 C50 F30 G10 G12 Q43 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:71:y:2018:i:c:p:128-139

DOI: 10.1016/j.eneco.2017.11.012

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