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Assessing the Resilience of Islamic Stocks in BRIC Countries: Analyzing Coherence and Cointegration with S&P 500 Options Implied Volatility Smirk during the Global Financial Crisis

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Listed:
  • Ariful Hoque

    (School of Business, Murdoch University, Murdoch 6150, Australia)

  • Tanvir Bhuiyan

    (School of Business, Murdoch University, Murdoch 6150, Australia)

  • Thi Le

    (School of Business, Murdoch University, Murdoch 6150, Australia)

Abstract

Challenging the perceived immunity of Islamic stocks to the global financial crisis, this research investigates whether there was any coherence and long-run cointegration between Islamic stocks of BRIC countries and S&P 500 options implied volatility smirk (IVS) in BRIC countries during the global financial crisis (GFC). Employing Engle–Granger and Johansen’s cointegration tests along with wavelet coherence analysis, this study reveals significant long-run cointegration and both short-term and long-term wavelet coherence between IVS and Islamic stock returns (ISRs). Since the S&P 500 options IVS is a reliable indicator of GFC in the context of the conventional stock market, the cointegration and coherence between ISRs and IVS indicate the susceptibility of ISRs to market contagion during the GFC. These findings challenge the notion of Islamic stocks as a safe haven during financial crises, showing their susceptibility to market downturns similar to conventional stocks.

Suggested Citation

  • Ariful Hoque & Tanvir Bhuiyan & Thi Le, 2024. "Assessing the Resilience of Islamic Stocks in BRIC Countries: Analyzing Coherence and Cointegration with S&P 500 Options Implied Volatility Smirk during the Global Financial Crisis," IJFS, MDPI, vol. 12(3), pages 1-33, July.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:3:p:67-:d:1432100
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    References listed on IDEAS

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    1. Mark Rubinstein., 1994. "Implied Binomial Trees," Research Program in Finance Working Papers RPF-232, University of California at Berkeley.
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