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Portfolio diversification opportunities for U.S. Islamic investors with its trading partners when the world catches a cold: A Multivariate-GARCH and wavelet approach

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  • Lim, Siok Jin

Abstract

The goal of this study is to analyse the co-movements and the portfolio diversification between the Islamic index of U.S. and its top trading partners, namely Canada, China, Mexico, Japan and Germany, using Morgan Stanley Capital International (MSCI) daily returns data from January 2013 to August 2020. We employed three main techniques: multivariate-GARCH-DCC, CWT and MODWT to analyse whether these markets have any diversification opportunities. Our findings reveal that, first, we observed that the U.S. Islamic index and its trading partners showed increased integration after U.S. implemented its first China-specific tariffs in 2018 and were closely integrated during the Covid-19 pandemic in 2020. Second, CWT results show that investors would gain diversification benefits in China and Mexico under specific investment horizons. Third, the results of MODWT shows Japan Islamic index provide short term diversification opportunity and Mexico Islamic index for longer term investments.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:103295
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    2. Esparcia, Carlos & Jareño, Francisco & Umar, Zaghum, 2022. "Revisiting the safe haven role of Gold across time and frequencies during the COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    3. Cervantes, Paula & Díaz, Antonio & Esparcia, Carlos & Huélamo, Diego, 2022. "The impact of COVID-19 induced panic on stock market returns: A two-year experience," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 1075-1097.

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    More about this item

    Keywords

    Islamic stocks; trade war; Covid-19; portfolio diversification; MGARCH-DCC; Wavelets;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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