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Does bitcoin co-move and share risk with Sukuk and world and regional Islamic stock markets? Evidence using a time-frequency approach

Walid Mensi, Mobeen Ur Rehman, Debasish Maitra, Khamis Hamed Al-Yahyaee and Ahmet Sensoy

Research in International Business and Finance, 2020, vol. 53, issue C

Abstract: This paper examines the co-movements between Bitcoin (BTC) and the Dow Jones World Stock Market Index, regional Islamic stock markets, and Sukuk markets. We apply cross wavelet transform and wavelet coherence analysis with a wavelet-based measure of value at risk. The co-movement is stronger and in the same direction at lower frequencies, suggesting the benefits from diversification with BTC are relatively less for long-term investors compared to short-term investors. Co-movement in the opposite direction at high frequencies implies better benefits of hedging in the short run through diversification in BTC and Islamic equity markets. Robustness tests show that the correlations increase as we increase from an investment horizon of two days to one of 64 days. The frequency-domain causality test shows significant causality flow from BTC to the Islamic market of Asia-Pacific, Japan, and Sukuk markets in the short term. Additionally, BTC is found to lead Asia-Pacific Islamic stock markets in the long term. Finally, we note that the benefits of portfolio diversification with BTC and Islamic assets vary across time and frequencies.

Keywords: Bitcoin; Islamic stock market; Sukuk; Co-movement; VaR-based wavelet approach (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:53:y:2020:i:c:s0275531919307822

DOI: 10.1016/j.ribaf.2020.101230

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