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Islamic vs. Conventional Equity Markets: A Multifractal Cross-Correlation Analysis with Economic Policy Uncertainty

Author

Listed:
  • Faheem Aslam

    (Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan)

  • Paulo Ferreira

    (VALORIZA—Research Center for Endogenous Resource Valorization, 7300-555 Portalegre, Portugal
    Instituto Politécnico de Portalegre, 7300-110 Portalegre, Portugal
    CEFAGE-UE, IIFA, Universidade de Évora, Palácio do Vimioso, Largo Marquês de Marialva, 8, 7000-809 Évora, Portugal)

  • Haider Ali

    (Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan)

  • Arifa

    (Department of Management Sciences, COMSATS University, Park Road, Islamabad 45550, Pakistan)

  • Márcia Oliveira

    (Instituto Politécnico de Portalegre, 7300-110 Portalegre, Portugal)

Abstract

There is ample evidence that Islamic stock markets perform differently from conventional stock markets, particularly when economic policy uncertainty (EPU) or any other uncertainty such as geopolitical uncertainty is present. Considering this context, this paper examines the US EPU’s cross-correlation with both conventional and Islamic stock markets from the perspective of multifractality. Daily stock market prices of five main countries are considered: US, Thailand, Indonesia, Pakistan, and India. Using the multifractal detrended cross-correlation analysis (MF-DCCA), we validate the existence of long-range cross-correlation between US EPU and all the stock markets considered, demonstrating that all pairs of US EPU have strong power law and multifractal characteristics. Furthermore, all pairs display varying levels of multifractal strength, with the US EPU and US conventional stock market exhibiting the strongest multifractal patterns. Additionally, a cross-correlation between US EPU and the different stock markets is found to be persistent. The results of this study are pertinent to the various market participants in both conventional and Islamic markets, particularly investors, who may be able to draw useful conclusions from them for purposes such as portfolio diversification.

Suggested Citation

  • Faheem Aslam & Paulo Ferreira & Haider Ali & Arifa & Márcia Oliveira, 2023. "Islamic vs. Conventional Equity Markets: A Multifractal Cross-Correlation Analysis with Economic Policy Uncertainty," Economies, MDPI, vol. 11(1), pages 1-18, January.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:1:p:16-:d:1027087
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    References listed on IDEAS

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    1. Hasan, Md. Bokhtiar & Hassan, M. Kabir & Alhomaidi, Asem, 2023. "How do sectoral Islamic equity markets react to geopolitical risk, economic policy uncertainty, and oil price shocks?," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    2. Selmi, Refk & Wohar, Mark & Deisting, Florent & Kasmaoui, Kamal, 2023. "Dynamic inflation hedging performance and downside risk: A comparison between Islamic and conventional stock indices," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 56-67.

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