Price discovery and regime shift behavior in the relationship between sharia stocks and sukuk: A two-state Markov switching analysis

Chaker Aloui, Shawkat Hammoudeh and Hela Ben Hamida

Pacific-Basin Finance Journal, 2015, vol. 34, issue C, 121-135

Abstract: The main purpose of this study is to analyze the interactive linkages between the sharia stocks and sukuk (Islamic bonds) in the Gulf Cooperation Countries (GCC), using the bivariate two-state Markov switching regime EGARCH of Henry (2009). The results support the presence of two different regimes in both the conditional mean and the conditional variance of those sharia stock and sukuk returns. The first regime corresponds to a high mean–low variance regime and the second is characterized by a low mean–high variance. Furthermore, our results point out that the linkages between the sharia stocks and sukuk GCC markets are also regime-dependent and the sharia stock market volatility reacts asymmetrically to events in the sukuk markets. Additionally, we provide to the literature new evidence which asserts that changes in the GCC sukuk price index have a significant impact on the probability of transmission across regimes. Our findings have several economic and managerial implications for Islamic portfolio managers, Islamic hedge funds, stock market regulators, and policy makers.

Keywords: Regime switching; Price discovery; Sharia stocks; Sukuk; Time varying transition probabilities (search for similar items in EconPapers)
JEL-codes: C51 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:34:y:2015:i:c:p:121-135

DOI: 10.1016/j.pacfin.2015.06.004

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