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Volatility Linkages and Co-movements Between International Stocks and the Sukuk Market

In: Bank Funding, Financial Instruments and Decision-Making in the Banking Industry

Author

Listed:
  • Alberto Dreassi

    (University of Trieste)

  • Stefano Miani

    (University of Udine)

  • Andrea Paltrinieri

    (University of Udine)

  • Alex Sclip

    (University of Trieste)

Abstract

In this paper, we investigate the volatility behavior and the co-movements between sukuk and international stock indexes. Asymmetric multivariate GARCH models with dynamic conditional correlations (DCC) were estimated under student-t distribution. We provide evidence of lower correlations between sukuk and US and EU stock markets. We also show that volatility linkages between sukuk and regional market indexes are higher during financial crisis. We argue that investors could obtain diversification benefits including sukuk in a well-diversified portfolio, given their lower volatility compared to equity. But higher volatility linkages and dynamic correlations during financial crises show that they are hybrid instruments between bonds and equity. Our findings are relevant for institutional investors and asset managers that include Islamic bonds in a diversified portfolio.

Suggested Citation

  • Alberto Dreassi & Stefano Miani & Andrea Paltrinieri & Alex Sclip, 2016. "Volatility Linkages and Co-movements Between International Stocks and the Sukuk Market," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Santiago Carbó Valverde & Pedro Jesús Cuadros Solas & Francisco Rodríguez Fernández (ed.), Bank Funding, Financial Instruments and Decision-Making in the Banking Industry, chapter 3, pages 31-61, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-30701-5_3
    DOI: 10.1007/978-3-319-30701-5_3
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    Citations

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    Cited by:

    1. Mustafa Demirel & Gazanfer Unal, 2020. "Applying multivariate-fractionally integrated volatility analysis on emerging market bond portfolios," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-29, December.
    2. Ahmed, Walid M.A., 2019. "Islamic and conventional equity markets: Two sides of the same coin, or not?," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 191-205.
    3. Dariusz Piotrowski, 2017. "Challenges and barriers to the development of sukuk in the European capital market," Proceedings of Economics and Finance Conferences 4807695, International Institute of Social and Economic Sciences.
    4. Md Hamid Uddin & Sarkar H. Kabir & Mohammad Kabir Hassan & Mohammed S. Hossain & Jia Liu, 2022. "Why do sukuks (Islamic bonds) need a different pricing model?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2210-2234, April.
    5. Rida Ahroum & Boujemâa Achchab, 2021. "Harvesting Islamic risk premium with long–short strategies: A time scale decomposition using the wavelet theory," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 430-444, January.
    6. Mahfuzur Rahman & Che Ruhana Isa & Teng-Tsai Tu & Moniruzzaman Sarker & Md. Abdul Kaium Masud, 2020. "A bibliometric analysis of socially responsible investment sukuk literature," Asian Journal of Sustainability and Social Responsibility, Springer, vol. 5(1), pages 1-19, December.

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