Connectedness between (un)conventional monetary policy and islamic and advanced equity markets: A returns and volatility spillover analysis

Sun-Yong Choi, Andrew Phiri, Tamara Teplova and Zaghum Umar

International Review of Economics & Finance, 2024, vol. 91, issue C, 348-363

Abstract: Using the spillover index, we investigated the relationship between Islamic equity markets and unconventional monetary policy(UMP) in five advanced economies. We documented that the spillovers among equity markets (“intraconnectedness”) are stronger than the spillovers among equity markets and monetary policy (“interconnectedness”), based on a static analysis of both returns and volatility. Second, the time-varying total spillover index showed that the Islamic market is a dominant net receiver of returns and volatility shocks. Furthermore, their spillover effect strengthened during the financial turmoil and UMP periods. Third, the time-varying net spillover effects implied that the US is the most dominant transmitter of return shocks, whereas the EU and UK are the dominant transmitters of volatility shocks. In addition, the US and Canada are the dominant transmitters of monetary policy shocks, whereas Japan is the main net receiver of these shocks. These results will be useful to investors, portfolio managers, and regulators in terms of investment decisions, portfolio allocation, and risk monitoring.

Keywords: Unconventional monetary policy; Shadow short rate (SSR); Connectedness; Spillover; Islamic stock markets; Conventional stock markets (search for similar items in EconPapers)
JEL-codes: C32 C50 E52 Q10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:91:y:2024:i:c:p:348-363

DOI: 10.1016/j.iref.2024.01.034

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