A statistical analysis of uncertainty for conventional and ethical stock indexes

This study estimates and compares financial uncertainty for two classes of ethical assets (Islamic and socially responsible) against the conventional US stock market. To this end, in line with Granger and Poon (2003), we use the class of asymmetric generalized autoregressive conditional heteroscedasticity modeling to measure uncertainty for three major stock indexes, the Dow Jones Industrial Index, Dow Jones Islamic Index, and Dow Jones Sustainability Index, over the period 1999–2017. Our findings indicate that contrary to expectations, conventional and ethical investments show high comparable levels of uncertainty, but vary with phases of the business cycle. Furthermore, we provide significant and cyclical impulse response reaction functions between uncertainty measures, suggesting further evidence of uncertainty spillovers. These findings could help investors to better rebalance their portfolios with regard to uncertainty change.