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On the investors' sentiments and the Islamic stock-bond interplay across investments' horizons

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  • Aloui, Chaker
  • Shahzad, Syed Jawad Hussain
  • Hkiri, Besma
  • Hela, Ben Hamida
  • Khan, Muhammad Asif

Abstract

In this paper, we examine the relevance of investor sentiment to Islamic stock-bond interplay in the time-frequency domain. Using various wavelet methods including multiple and partial wavelet coherence and bivariate and multivariate nonlinear causality tests, our results reveal that the connectedness between Islamic stocks and bonds is affected by investor sentiment over short- and long-run investment horizons. Strong multivariate nonlinear causalities are evidenced between the three variables. Static and rolling-window estimates of the percentage of total volume and percentage of significant area from wavelet coherence indicate the relevance of investor sentiment in explaining the link between Islamic stocks and bonds over time-scales and investment horizons. From a portfolio management and financial stability perspective, our results provide prominent implications and operational recommendations.

Suggested Citation

  • Aloui, Chaker & Shahzad, Syed Jawad Hussain & Hkiri, Besma & Hela, Ben Hamida & Khan, Muhammad Asif, 2021. "On the investors' sentiments and the Islamic stock-bond interplay across investments' horizons," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:pacfin:v:65:y:2021:i:c:s0927538x20307034
    DOI: 10.1016/j.pacfin.2020.101491
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    2. Mohammad Alomari & Abdel Razzaq Al rababa’a & Ghaith El-Nader & Ahmad Alkhataybeh, 2021. "Who’s behind the wheel? The role of social and media news in driving the stock–bond correlation," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 959-1007, October.
    3. Huynh, Toan Luu Duc & Foglia, Matteo & Nasir, Muhammad Ali & Angelini, Eliana, 2021. "Feverish sentiment and global equity markets during the COVID-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 1088-1108.
    4. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Bonsu, Christiana Osei & Karikari, Nana Kwasi & Hammoudeh, Shawkat, 2022. "The effects of public sentiments and feelings on stock market behavior: Evidence from Australia," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 443-472.

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    More about this item

    Keywords

    Sharia stocks; Sukuk; Investor sentiment; Multiple and partial wavelet coherence;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G1 - Financial Economics - - General Financial Markets

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