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Crises and contagion in Asia Pacific — Islamic v/s conventional markets

Syed Aun R. Rizvi (), Shaista Arshad and Nafis Alam

Pacific-Basin Finance Journal, 2015, vol. 34, issue C, 315-326

Abstract: This study attempts to investigate market co-movements in Islamic and mainstream equity markets across US and Asia Pacific. The objective is to understand the behavior of contagion across multiple crises in the last decade and a half. Taking a lead from theory, of pure and fundamental contagion, we employ wavelet decomposition to unveil the multi-horizon nature of co-movement. Our findings support the popular belief, that the majority of the global shocks since 1996 were transmitted via excessive linkages from US to Asia Pacific, while the recent subprime crisis reveals a fundamental based contagion. In terms of the real sector grounded Islamic markets, they tend to show traces of reduced exposure in some crises owing to low leverage effect, while the less diversified portfolio nature increases vulnerability in other crises. The findings tend to provide an empirical ground for the argument of Islamic equities and their composition, as a possible buffer to financial crises.

Keywords: Contagion; Islamic finance; Asia pacific; Wavelet (search for similar items in EconPapers)
Date: 2015
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