Islamic vs. Conventional Equity Markets: A Multifractal Cross-Correlation Analysis with Economic Policy Uncertainty

Faheem Aslam, Paulo Ferreira, Haider Ali, Arifa and Márcia Oliveira
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Faheem Aslam: Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan
Haider Ali: Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan
Arifa: Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan
Márcia Oliveira: Instituto Politécnico de Portalegre, 7300-110 Portalegre, Portugal

Economies, 2023, vol. 11, issue 1, 1-18

Abstract: There is ample evidence that Islamic stock markets perform differently from conventional stock markets, particularly when economic policy uncertainty (EPU) or any other uncertainty such as geopolitical uncertainty is present. Considering this context, this paper examines the US EPU’s cross-correlation with both conventional and Islamic stock markets from the perspective of multifractality. Daily stock market prices of five main countries are considered: US, Thailand, Indonesia, Pakistan, and India. Using the multifractal detrended cross-correlation analysis (MF-DCCA), we validate the existence of long-range cross-correlation between US EPU and all the stock markets considered, demonstrating that all pairs of US EPU have strong power law and multifractal characteristics. Furthermore, all pairs display varying levels of multifractal strength, with the US EPU and US conventional stock market exhibiting the strongest multifractal patterns. Additionally, a cross-correlation between US EPU and the different stock markets is found to be persistent. The results of this study are pertinent to the various market participants in both conventional and Islamic markets, particularly investors, who may be able to draw useful conclusions from them for purposes such as portfolio diversification.

Keywords: Islamic stock markets; conventional stock markets; multifractality; multifractal detrended cross-correlation analysis (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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