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Exploring Portfolio Diversification Opportunities Through Venture Capital Financing: Evidence from MGARCH-DCC, Markov Switching, and Wavelet Approaches

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  • Yusuf Jaffar
  • Ginanjar Dewandaru
  • Mansur Masih

Abstract

Islamic financial institutions are being pressurized by critics to offer profit and loss sharing (PLS) financing, such as venture capital (VC) financing, for the purpose of entrepreneurial development aligned to the principle of equity risk sharing. Our study aims to link PLS investments with portfolio optimization opportunities for the Islamic asset managers. Using portfolio analysis with dynamic conditional correlation, Markov switching, and maximal overlap discrete wavelet transformation, our findings tend to indicate that there is indeed a portfolio optimization opportunity in investment universe for the fund managers who invested in PLS investments in the context of VC asset class over the long run.

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  • Yusuf Jaffar & Ginanjar Dewandaru & Mansur Masih, 2018. "Exploring Portfolio Diversification Opportunities Through Venture Capital Financing: Evidence from MGARCH-DCC, Markov Switching, and Wavelet Approaches," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(6), pages 1320-1336, May.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:6:p:1320-1336
    DOI: 10.1080/1540496X.2016.1277420
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    Cited by:

    1. Lim, Siok Jin, 2020. "Portfolio diversification opportunities for U.S. Islamic investors with its trading partners when the world catches a cold: A Multivariate-GARCH and wavelet approach," MPRA Paper 103295, University Library of Munich, Germany.
    2. Kanwal Iqbal Khan & Syed M. Waqar Azeem Naqvi & Muhammad Mudassar Ghafoor & Rana Shahid Imdad Akash, 2020. "Sustainable Portfolio Optimization with Higher-Order Moments of Risk," Sustainability, MDPI, vol. 12(5), pages 1-14, March.
    3. Ahmed Shafique Joyo & Lin Lefen, 2019. "Stock Market Integration of Pakistan with Its Trading Partners: A Multivariate DCC-GARCH Model Approach," Sustainability, MDPI, vol. 11(2), pages 1-23, January.

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