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Volatility spillover and dynamic correlation between Islamic, conventional, cryptocurrency and precious metal markets during the immediate outbreak of COVID-19 pandemic

Author

Listed:
  • Muhammad Mahmudul Karim
  • Abu Hanifa Md. Noman
  • M. Kabir Hassan
  • Asif Khan
  • Najmul Haque Kawsar

Abstract

Purpose - This paper aims to investigate the immediate effect of the outbreak of the COVID-19 pandemic by investigating volatility transmission and dynamic correlation between stock (conventional and Islamic) markets, bitcoin and major commodities such as gold, oil and silver at different investment horizons before and after 161 trading days of the outbreak of the COVID-19 pandemic. Design/methodology/approach - The MGARCH-DCC and maximum overlap discrete wavelet transform -based cross-correlation were used in the estimation of the volatility spillover and continuous wavelet transform in the estimation of the time-varying volatility and correlation between the assets at different investment horizons. Findings - The authors observed a sudden correlation breakdown following the COVID-19 shock. Oil (Bitcoin) was a major volatility transmitter before (during) COVID-19. Digital gold (Bitcoin), gold and silver became highly correlated during COVID-19. The highest co-movement between the assets was observed at medium and long-term investment horizons. Practical implications - The study findings have a financial implication for day traders, investors and policymakers in the understanding of volatility transmission and intercorrelation in a bid to actively manage stylized and well-diversified asset portfolios. Originality/value - This study is unique for its employment in estimating the time-varying conditional volatility of the investable assets and cross-correlations between them at different investment horizons, particularly before and after COVID-19 outbreak.

Suggested Citation

  • Muhammad Mahmudul Karim & Abu Hanifa Md. Noman & M. Kabir Hassan & Asif Khan & Najmul Haque Kawsar, 2024. "Volatility spillover and dynamic correlation between Islamic, conventional, cryptocurrency and precious metal markets during the immediate outbreak of COVID-19 pandemic," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 17(4), pages 662-692, July.
    • Handle: RePEc:eme:imefmp:imefm-02-2023-0069
    DOI: 10.1108/IMEFM-02-2023-0069
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    More about this item

    Keywords

    Volatility transmission; Investable assets; GARCH0-DCC; Wavelet analysis; Covid-19 pandemic; E31; G01; G11; G12; G13; M5;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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