Volatility Linkages and Co-movements Between International Stocks and the Sukuk Market

Alberto Dreassi, Stefano Miani, Andrea Paltrinieri () and Alex Sclip
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Alberto Dreassi: University of Trieste
Stefano Miani: University of Udine
Andrea Paltrinieri: University of Udine
Alex Sclip: University of Trieste

Chapter 3 in Bank Funding, Financial Instruments and Decision-Making in the Banking Industry, 2016, pp 31-61 from Palgrave Macmillan

Abstract: Abstract In this paper, we investigate the volatility behavior and the co-movements between sukuk and international stock indexes. Asymmetric multivariate GARCH models with dynamic conditional correlations (DCC) were estimated under student-t distribution. We provide evidence of lower correlations between sukuk and US and EU stock markets. We also show that volatility linkages between sukuk and regional market indexes are higher during financial crisis. We argue that investors could obtain diversification benefits including sukuk in a well-diversified portfolio, given their lower volatility compared to equity. But higher volatility linkages and dynamic correlations during financial crises show that they are hybrid instruments between bonds and equity. Our findings are relevant for institutional investors and asset managers that include Islamic bonds in a diversified portfolio.

Keywords: Stock Market; Stock Index; GARCH Model; Diversification Benefit; Dynamic Conditional Correlation (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-319-30701-5_3

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DOI: 10.1007/978-3-319-30701-5_3

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