Crossroads of volatility spillover: Interactions between Islamic and conventional financial systems

Abdelhamid Addi, Matteo Foglia, Gang-Jin Wang () and Federica Miglietta
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Abdelhamid Addi: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Matteo Foglia: UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro
Gang-Jin Wang: HNU - Hunan University [Changsha]
Federica Miglietta: UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro

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Abstract: This study investigates the volatility spillover in dual financial systems, namely Islamic financial systems (banking and insurance) and conventional financial systems (banking and insurance). Employing an information risk spillover network, we are able to explore information flow between conventional and Islamic banking and insurance systems. We analyze their role in transmitting spillover risk, showing that capturing spillovers of both sectors provides a more comprehensive perspective on financial risk contagion. Our results show that spillovers form as intersectoral clusters affected by their own volatility rather than by the volatility of another financial system. Moreover, we find an asymmetric spillover effect between the conventional and Islamic systems. The conventional sector tends to dominate spillover effects. Our results are important for regulators and investors, helping improve corporate and global risks assessment.

Keywords: Islamic banking and insurance; Conventional banking and insurance; Corporate risk; Volatility; Spillover effect (search for similar items in EconPapers)
Date: 2024-11-06
Note: View the original document on HAL open archive server: https://hal.science/hal-04891652v1
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Published in Research in International Business and Finance, 2024, 74, pp.102700-102700. ⟨10.1016/j.ribaf.2024.102700⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04891652

DOI: 10.1016/j.ribaf.2024.102700

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