Tail risk spillovers between Islamic sectoral equities and bond markets: a time-frequency domain approach

Mabruk Billah, Md Rafayet Alam and Faruk Balli

Applied Economics, 2025, vol. 57, issue 32, 4739-4767

Abstract: This study examines the tail risk spillover between Islamic sectoral stock indices and country specific investable Islamic bonds in time and frequency domain and provides useful implications for portfolio management. For the analyses, Conditional Autoregressive ValueatRisk (CAViaR), Quantile Connectedness, and DCCGARCH t-Copula models are estimated utilizing daily data from 15 countries. The findings show that the connectedness and spillover of risks are much stronger at tails than at median, and in the short-term than in long-term. Whereas median risk connectedness surges during COVID-19 pandemic, the connectedness between tail risks is usually elevated even before the COVID-19 pandemic with industrial sector being consistently a significant net transmitter of shocks. Moreover, all the sectoral stock market indices are significant and consistent transmitter of left tail shocks indicating a much stronger role of sectoral stock markets in transmitting large negative shocks. A heightened connectedness is also observed during Russia-Ukraine war mainly in the short-term frequency. The portfolio analysis shows that long positions in sectoral stocks can usually be hedged by taking short positions in Islamic bonds. Hedging effectiveness and optimal portfolio weights are also calculated to provide market participants with further information.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2024.2364091 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:57:y:2025:i:32:p:4739-4767

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2024.2364091

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().