Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets

Muhammad Anas, Ghulam Mujtaba, Sadaf Nayyar and Saira Ashfaq
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Muhammad Anas: Department of Management Sciences, COMSATS University Islamabad, Islamabad 46000, Pakistan
Ghulam Mujtaba: Department of Management Sciences, COMSATS University Islamabad, Islamabad 46000, Pakistan
Sadaf Nayyar: Department of Management Sciences, COMSATS University Islamabad, Islamabad 46000, Pakistan
Saira Ashfaq: Department of Management Sciences, Bahria University Islamabad, Islamabad 44000, Pakistan

JRFM, 2020, vol. 13, issue 7, 1-27

Abstract: This paper investigates the decoupling and integration between the region-wise (Asia, Europe, Africa and the Americas) developed and emerging market’s equity pairs of Islamic and conventional stock returns with the focus on multi-horizons. In doing so, daily wavelet and ADCC-based stock returns correlations are estimated to capture the dynamics of time-frequency and the time-domain based correlations, respectively. The findings of this study indicate that at the short-term horizon, the all selected emerging and developed Islamic and conventional equity markets across all regions depict a high positive correlation, suggesting a rejection of the decoupling hypothesis. However, it is accepted for some of the developed markets of the Pacific region (Hong Kong and New Zealand), Europe (Ireland, Denmark and Spain) and emerging markets of Asia (China), Europe (Czech Republic) and Americas (Argentina and Peru) at a medium-term horizon. Moreover, in an examination of the comparative behaviors of the wavelet and ADCC-based Islamic-conventional correlations, the observed transitional behavior has been exemplified as the difference between the time-frequency and time-domain analysis. This study provides fruitful insights for investors who opt for cross-asset allocation and seek maximum portfolio diversification benefits.

Keywords: decoupling; recoupling; Wavelet Cross Correlation; ADCC correlation; Islamic and conventional stocks (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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