Multivariate Co-movement Between Islamic Stock and Bond Markets Among the GCC: A Wavelet-Based View

Chaker Aloui, Rania Jammazi and Hela Ben Hamida ()
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Hela Ben Hamida: Imam Muhammad Ibn Saud Islamic University (IMSIU)

Computational Economics, 2018, vol. 52, issue 2, No 14, 603-626

Abstract: Abstract In this study, we investigate the connectedness between sharia stock index and three Islamic bond yields within a global perspective of the Gulf Cooperation Council Islamic financial markets. The main novelty of the present study is that we extend previous studies by performing three wavelet variants in bivariate and multivariate frameworks, namely the wavelet multiple correlation, the wavelet multiple cross correlation and wavelet cohesion. The findings point out a significant changing pattern in the dynamic linkage between sharia stocks and Islamic bond yields in the time-frequency domain. A strong positive association is evidenced in the short horizons and a negative linkage is branded for longer time-scales. Some resemblances are found for the wavelet cohesion corroborating the existence of potential portfolios’ diversification opportunities at lower frequencies. The multivariate wavelet cross correlation unveils that the intensity of the co-movement reaches its zenith at high frequencies. These results are not similar to the bivariate wavelet coherence but are coincident with the wavelet cohesion approach, which may be due to the difference in dimensionality of the wavelet approaches. The implications of this study will be useful for Islamic portfolio managers, international investors and market regulators in better encircling the best ways to adopt a proactive knowledge of Islamic financial markets behavior.

Keywords: Multiple wavelet correlation; Cross correlation; Wavelet coherence; Sharia stocks; Islamic bonds (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10614-017-9703-7

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