Exploring Portfolio Diversification Opportunities Through Venture Capital Financing: Evidence from MGARCH-DCC, Markov Switching, and Wavelet Approaches

Yusuf Jaffar, Ginanjar Dewandaru and Abul Masih

Emerging Markets Finance and Trade, 2018, vol. 54, issue 6, 1320-1336

Abstract: Islamic financial institutions are being pressurized by critics to offer profit and loss sharing (PLS) financing, such as venture capital (VC) financing, for the purpose of entrepreneurial development aligned to the principle of equity risk sharing. Our study aims to link PLS investments with portfolio optimization opportunities for the Islamic asset managers. Using portfolio analysis with dynamic conditional correlation, Markov switching, and maximal overlap discrete wavelet transformation, our findings tend to indicate that there is indeed a portfolio optimization opportunity in investment universe for the fund managers who invested in PLS investments in the context of VC asset class over the long run.

Date: 2018
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DOI: 10.1080/1540496X.2016.1277420

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