Assessing the Resilience of Islamic Stocks in BRIC Countries: Analyzing Coherence and Cointegration with S&P 500 Options Implied Volatility Smirk during the Global Financial Crisis

Ariful Hoque (), Tanvir Bhuiyan and Thi Le
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Ariful Hoque: School of Business, Murdoch University, Murdoch 6150, Australia
Tanvir Bhuiyan: School of Business, Murdoch University, Murdoch 6150, Australia
Thi Le: School of Business, Murdoch University, Murdoch 6150, Australia

IJFS, 2024, vol. 12, issue 3, 1-33

Abstract: Challenging the perceived immunity of Islamic stocks to the global financial crisis, this research investigates whether there was any coherence and long-run cointegration between Islamic stocks of BRIC countries and S&P 500 options implied volatility smirk (IVS) in BRIC countries during the global financial crisis (GFC). Employing Engle–Granger and Johansen’s cointegration tests along with wavelet coherence analysis, this study reveals significant long-run cointegration and both short-term and long-term wavelet coherence between IVS and Islamic stock returns (ISRs). Since the S&P 500 options IVS is a reliable indicator of GFC in the context of the conventional stock market, the cointegration and coherence between ISRs and IVS indicate the susceptibility of ISRs to market contagion during the GFC. These findings challenge the notion of Islamic stocks as a safe haven during financial crises, showing their susceptibility to market downturns similar to conventional stocks.

Keywords: GFC; smirk; options; financial crisis; Islamic stock; BRIC countries (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
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