Dynamic Conditional Correlation and Volatility Spillover between Conventional and Islamic Stock Markets: Evidence from Developed and Emerging Countries

Mohammad Sahabuddin, Md. Aminul Islam, Mosab I. Tabash (), Md. Kausar Alam, Linda Nalini Daniel and Imad Ibraheem Mostafa
Additional contact information
Mohammad Sahabuddin: Faculty of Business Administration, University of Science and Technology Chittagong, Chattogram 4202, Bangladesh
Md. Aminul Islam: Faculty of Applied Science and Humanities, Universiti Malaysia Perlis, Perlis 02600, Malaysia
Mosab I. Tabash: College of Business, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates
Md. Kausar Alam: BRAC Business School, BRAC University, Dhaka 1212, Bangladesh
Linda Nalini Daniel: Faculty of Business, Higher Colleges of Technology, Abu Dhabi P.O. Box 41012, United Arab Emirates
Imad Ibraheem Mostafa: College of Education, Humanities and Social Sciences, Al Ain University, Al Ain P.O. Box 64141, United Arab Emirates

JRFM, 2023, vol. 16, issue 2, 1-19

Abstract: This study aims to investigate the dynamic conditional correlation and volatility spillover between the conventional and Islamic stock markets in developed and emerging countries in order to develop better portfolio and asset allocation strategies. We used both multivariate GARCH (MGARCH) and multi-scales-based maximal overlap discrete wavelet transform (MODWT) approaches to investigate dynamic conditional correlation and volatility spillover between conventional and Islamic stock markets in developed and emerging countries. The results show that conventional and Islamic markets move together in the long run for a specific time horizon and present time-varying volatility and dynamic conditional correlation, while volatility movement changes due to financial catastrophes and market conditions. Further, the findings point out that Chinese conventional and Islamic stock indexes showed higher volatility, whereas Malaysian conventional and Islamic stock indexes showed comparatively lower volatility during the global financial crisis. This study provides fresh insights and practical implications for risk management, asset allocation, and portfolio diversification strategies that evaluate stock market reactions to the crisis in the international avenues of finance literature.

Keywords: conditional correlation; volatility spillover; conventional and Islamic stock market (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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