Time Varying Correlation Between Islamic Equity and Commodity Returns: Implications for Portfolio Diversification

Aftab Parvez Khan, Sarkar Humayun Kabir, Omar Bashar and Abul Masih

Journal of Developing Areas, 2015, vol. 49, issue 5, 115-128

Abstract: This paper aims at investigating the time varying relationship between Islamic equity and commodity returns in order to examine how combination of Islamic equities and commodities contribute to the benefits of portfolio investors and managers. In order to investigate this relationship, we employed multivariate GARCH method on return series of five different commodity groups (energy, precious metals, agricultural, non-ferrous metals and softs group), Dow Jones spot commodity index as a proxy of an aggregate commodity market and Dow Jones Islamic index over the period January 3, 2001 - March 28, 2013. Our findings show that correlations between commodity and Islamic stock markets’ returns change in different time periods and these two markets moved very closely during 2008 financial crisis in particular. Besides, volatility of returns in both markets reached at their peaks during the 2008 crisis period. We also show that despite sharing some common features, commodities cannot be considered as a homogeneous asset class: a speculation phenomenon is for instance, highlighted for energy sector comprising oil, while the safe-haven role of gold is evidenced, which constitutes a part of precious metal sector.

Keywords: Islamic Capital Market; Commodity Market; Financial Crisis; Multivariate GARCH Dynamic Conditional Correlations (search for similar items in EconPapers)
JEL-codes: F30 G10 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://muse.jhu.edu/journals/journal_of_developing_areas/v049/49.5.khan01.html

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.49:year:2015:issue5:pp:115-128

Access Statistics for this article

More articles in Journal of Developing Areas from Tennessee State University, College of Business Contact information at EDIRC.
Bibliographic data for series maintained by Abu N.M. Wahid ().