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Contagion between Islamic and Conventional Banking: A GJR DCC-GARCH and VAR Analysis

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  • Mohamed Amin Chakroun
  • Mohamed Imen Gallali

Abstract

This study aims testing the presence of contagion through Islamic and conventional banking systems during the subprime crisis. Specifically, we examine how far a shock striking conventional or Islamic banks is exported from one group to another or remain limited. Therefore, we adopt a GJR DCC-GARCH model to study the dynamic conditional correlation and the vector auto-regression VAR model in order to identify causality direction and the impact of a shock on the returns of each banking index. Hence, our results indicate that Islamic banks are not isolated from conventional banks while there is a contagion phenomenon between these two financial systems. Furthermore, we determined that during the crisis, Islamic banks could not absorb this effects and ensure stability because these banks were also affected by the crisis.

Suggested Citation

  • Mohamed Amin Chakroun & Mohamed Imen Gallali, 2016. "Contagion between Islamic and Conventional Banking: A GJR DCC-GARCH and VAR Analysis," International Business Research, Canadian Center of Science and Education, vol. 9(10), pages 115-126, October.
    • Handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:10:p:115-126
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    References listed on IDEAS

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    1. repec:onb:oenbwp:y::i:79:b:1 is not listed on IDEAS
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    4. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
    5. Tse, Y K & Tsui, Albert K C, 2002. "A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model with Time-Varying Correlations," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 351-362, July.
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