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The Financial Volatility of Islamic Banks during the Subprime Crisis

Author

Listed:
  • Aniss Boumediene

    (GREGOR - Groupe de Recherche en Gestion des Organisations - UP1 - Université Paris 1 Panthéon-Sorbonne - IAE Paris - Sorbonne Business School)

  • Jérôme Caby

    (CEREFIGE - Centre Européen de Recherche en Economie Financière et Gestion des Entreprises - UL - Université de Lorraine)

Abstract

This empirical study examines the financial stability of Islamic banks during the subprime crisis. It covers a sample of fourteen Islamic banks and fourteen conventional banks. The conditional variance (volatility) of returns was used to measure financial stability. The E-GARCH and GJR-GARCH asymmetric models were used to estimate volatility due to their ability to take into account the leverage effect. The results of this study show that conventional bank returns were highly volatile during the crisis period, while Islamic banks saw their volatility - initially low - increase during the crisis, though to a much more moderate extent. These results corroborate both the hypothesis that Islamic banks were at least partially immune to the subprime crisis and the underlying hypothesis that Islamic banks are not subject to the same risks as conventional banks - although, due to their links with the real economy, they do eventually suffer the consequences of the subprime crisis.

Suggested Citation

  • Aniss Boumediene & Jérôme Caby, 2013. "The Financial Volatility of Islamic Banks during the Subprime Crisis," Post-Print hal-01369253, HAL.
    • Handle: RePEc:hal:journl:hal-01369253
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    Citations

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    Cited by:

    1. Monia Ben Latifa & Walid Khoufi, 2018. "Contagion between Islamic and Conventional Banks in Malaysia: Empirical Investigation using a DCC-GARCH Model العدوى بين البنوك الإسلامية والتقليدية في ماليزيا: تحقيق تجريبي بواسطة نموذج (DCC-GARCH)," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 31(1), pages 167-178, January.
    2. Paolo Giudici & Shatha Hashem, 2015. "Systemic risk of Islamic Banks," DEM Working Papers Series 103, University of Pavia, Department of Economics and Management.
    3. Khediri, Karim Ben & Charfeddine, Lanouar & Youssef, Slah Ben, 2015. "Islamic versus conventional banks in the GCC countries: A comparative study using classification techniques," Research in International Business and Finance, Elsevier, vol. 33(C), pages 75-98.
    4. Salma Louati & Younes Boujelbene, 2020. "Inflation targeting and bank risk: The interacting effect of institutional quality," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1847889-184, January.
    5. repec:ipg:wpaper:2014-505 is not listed on IDEAS
    6. Addi, Abdelhamid & Bouoiyour, Jamal, 2023. "Interconnectedness and extreme risk: Evidence from dual banking systems," Economic Modelling, Elsevier, vol. 120(C).
    7. repec:abd:kauiea:v:31:y:2018:i:1:p:167-178 is not listed on IDEAS
    8. Bitar, Mohammad & Hassan, M. Kabir & Walker, Thomas, 2017. "Political systems and the financial soundness of Islamic banks," Journal of Financial Stability, Elsevier, vol. 31(C), pages 18-44.

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