The Impact of the Cryptocurrency Market on Islamic vs. Conventional Stock Returns: Evidence from Gulf Cooperation Council Countries

Naji Mansour Nomran, Abdelkader Laallam (), Razali Haron, Aghilasse Kashi, Zakir Hossen Shaikh and Joji Abey
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Naji Mansour Nomran: Department of Finance and Accounting, College of Business Administration, Kingdom University, Riffa 40434, Bahrain
Abdelkader Laallam: Department of Finance, School of Business, King Faisal University, Al-Hasa 31982, Saudi Arabia
Razali Haron: Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur 53100, Malaysia
Aghilasse Kashi: Department of Islamic Finance, College of Islamic Studies, Hamad Bin Khalifa University, Doha P.O. Box 34110, Qatar
Zakir Hossen Shaikh: Department of Finance and Accounting, College of Business Administration, Kingdom University, Riffa 40434, Bahrain
Joji Abey: Department of Finance and Accounting, College of Business Administration, Kingdom University, Riffa 40434, Bahrain

JRFM, 2024, vol. 17, issue 7, 1-21

Abstract: The rapid rise and widespread global adoption of cryptocurrencies in recent years has fundamentally transformed the international financial landscape, with digital assets increasingly being recognized for their potential to influence the stability and performance of traditional capital markets. Against this backdrop, this study aims to empirically investigate the impact of cryptocurrency returns on Islamic vs. conventional stock returns in Gulf Cooperation Council (GCC) countries. The salient distinctions between Islamic and conventional stock markets include fundamental differences in principles, investment allocations, and risk profiles, underscoring the importance of examining the impact of cryptocurrency returns on these distinct equity segments. Daily data were collected from stock indices in five GCC countries over the period 2016–2019, including two sub-periods: before and after the 2017 crypto crash. Pooled OLS, fixed effects, random effects, and generalized linear models (GLMs) were used to analyze the data collected during the study. With the GCC increasingly focusing on cryptocurrency markets, there is growing concern about these markets’ potential impact on regional stocks. This study addresses the important questions of whether the impacts of the cryptocurrency market on Islamic vs. conventional stock markets differ throughout the GCC region and how these impacts have evolved since the crypto crash period. The findings reveal that cryptocurrency returns had a negative impact on both GCC Islamic and conventional stock market returns for the full sample period (2016–2019), and the negative effect was far more pronounced for conventional stocks. For the two sub-periods before and after the crash, only the cryptocurrency market and conventional GCC stocks remained negatively correlated, while the cryptocurrency market and the GCC Islamic stock markets became uncorrelated. Thus, for the calmer sub-periods before and after the crypto crash, the rise in cryptocurrency returns may have enticed GCC investors away from conventional stocks, perhaps resulting in a decline in their investment in these stocks. Meanwhile, those who invest in Islamic stocks may not be exposed to this temptation.

Keywords: cryptocurrencies; blockchain technologies; GCC countries; Islamic vs. conventional stock markets; FinTech (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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