On the dependency structure of Islamic assets

Mahmoud Bekri, M. Kabir Hassan and Nafis Alam

Chapter 26 in Handbook of Empirical Research on Islam and Economic Life, 2017, pp 602-623 from Edward Elgar Publishing

Abstract: One of the challenges in Islamic finance (IF) is to employ appropriate modelling tools in asset allocation and risk management, which match the specificities of Islamic law Shariah-compliant stocks, especially after the wide rejection of the normality assumption. The employment of the copula-Garch and copula vines allows a more consistent modelling of the dependence structure. According to the safety-first rule of investing (hifdh almal shariah rule), the IF portfolio manager (mudharib) should consider the use of advanced models if they show considerable advantages. This chapter examines the dependence structure of six representative shariah-compliant stocks from the Islamic world and shows how the employment of the suggested copulas achieves a great amelioration of the modelling of the dependence structure in IF industry.

Keywords: Asian Studies; Economics and Finance (search for similar items in EconPapers)
Date: 2017
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