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Impact of the COVID-19 outbreak and its related announcements on the Chinese conventional and Islamic stocks’ connectedness

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  • Aloui, Chaker
  • Asadov, Alam
  • Al-kayed, Lama
  • Hkiri, Besma
  • Danila, Nevi

Abstract

In this paper, we assess the impacts of the COVID-19 counts (infected cases, deaths and recovered) and related announcements on the Islamic and conventional stocks interplays in the Chinese market. We test whether Islamic stocks are perceived as assets providing diversification benefits in time of COVID-19 pandemic. Doing so, we implement a multivariate GJR-GARCH model under dynamic conditional correlation (DCC) as well as multiple and partial wavelet coherence methods to recent Chinese daily data ranging from 2 December 2019 to 8 May 2020 and COVID-19 related announcement for the period. Our results from multivariate GJR-GARCH models reveal that COVID-19 infected cases and deaths do impact mean DCCs between Islamic and conventional stocks, number of recovered do not have such impact, while none of the above have any significant impact on the DCCs fluctuations. However, when we analyze the impact of COVID-19 related announcement on the variation of conditional correlation between two stocks (i.e. DCC volatility) our findings show that 7 out of 10 such announcements (mainly those with serious health treats or economic implications) do effect those volatilities in Chinese equity market. The empirical findings from partial and multiple wavelet coherences provide robust evidence of instability in the co-movement between Islamic and conventional indexes for different scales and over dissimilar sub-periods. Indeed, the weakening of co-movements is especially notable in the very short and short-run where operating the short-term investors. Our empirical findings offer several key propositions for policy makers and portfolio managers in China with broad implications applicable to other markets.

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  • Aloui, Chaker & Asadov, Alam & Al-kayed, Lama & Hkiri, Besma & Danila, Nevi, 2022. "Impact of the COVID-19 outbreak and its related announcements on the Chinese conventional and Islamic stocks’ connectedness," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821001881
    DOI: 10.1016/j.najef.2021.101585
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    More about this item

    Keywords

    COVID-19; China; Islamic stocks; Connectedness; GJR-GARCH model; Wavelet coherence;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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