Financial Market Risks during the COVID-19 Pandemic

Omair Haroon, Mohsin Ali, Abdullah Khan, Mudeer A. Khattak and Syed Aun R. Rizvi

Emerging Markets Finance and Trade, 2021, vol. 57, issue 8, 2407-2414

Abstract: This article examines the nature of time-varying systematic risk for both Islamic and non-Islamic sectoral indices during COVID-19. The novelty lies in the analysis of behavioral changes in beta as the global health crisis moved from an epidemic to a pandemic. Using daily stock market return data on 10 different industry sectors, we show that both Islamic and conventional indices depict a similar pattern, but Islamic equities exhibit lower risk, indicating a subdued reaction to market movements. However, as the COVID-19 evolves from an epidemic to a pandemic the trend changes, with Consumer Services, Financials, Healthcare, and Oil & Gas sector betas depicting an overreaction in Islamic equities. These results remain robust to multiple additional tests. On this basis, we argue that a lower systematic risk of Islamic equities can offer portfolio diversification opportunities.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:57:y:2021:i:8:p:2407-2414

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DOI: 10.1080/1540496X.2021.1873765

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