Should Shariah-compliant investors include commodities in their portfolios? New evidence

Ruslan Nagayev and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the links between price returns for seven commodities and Shariah-compliant equities (developed and emerging markets) over the period from January 1996 to April 2013. Employing the dynamic conditional correlation (DCC) M-GARCH methodology, we show that the correlations between commodity and stock markets evolve over time and are highly volatile, particularly during the financial crisis, which has played a key role, emphasizing the increased integration between commodity and stock markets, and underlining the financialization of commodity markets. However, in the last couple of years the correlation between commodities and equities seems to be decaying. Hence, Islamic investors hopefully could gain from the diversification benefits by the inclusion of commodities into their portfolios.

Keywords: financialization of commodities; shariah-compliant equities; MGARCH – DCC technique (search for similar items in EconPapers)
JEL-codes: C22 C58 Q14 (search for similar items in EconPapers)
Date: 2013-08-24
New Economics Papers: this item is included in nep-hme
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