Is the Islamic Finance Model More Resilient than the Conventional Finance Model? Evidence from Sudden Changes in the Volatility of Dow Jones Indexes

Posted: 10 May 2011

See all articles by Amélie Charles

Amélie Charles

Audencia Nantes School of Management

Adrian Pop

Université d'Orléans

Olivier Darné

University of Nantes - Faculty of Business and Economics

Date Written: May 1, 2011

Abstract

This paper addresses the question whether the Islamic indexes are more or less affected by sudden changes in volatility regimes than the “conventional” counterparts. For that purpose, we apply an iterative cumulative sum of squares (ICSS) algorithm to identify structural breaks in the volatility patterns characterizing several major Islamic and conventional indexes over a period that covers about 14 years of daily data and includes the recent large-scale financial turmoil. The results show that both Islamic and conventional indexes have been affected to the same degree by variance changes. We further test the hypothesis of equality of variance between Islamic and conventional indexes over various sub-periods defined with respect to the identified sudden changes in variance. The statistical tests confirm this hypothesis over the vast majority of sub-periods. However, when the variance is not the same across the two types of indexes, the Islamic indexes exhibit slightly higher volatilities than their “conventional” counterparts.

Suggested Citation

Charles, Amelie and Pop, Adrian and Darné, Olivier, Is the Islamic Finance Model More Resilient than the Conventional Finance Model? Evidence from Sudden Changes in the Volatility of Dow Jones Indexes (May 1, 2011). International Conference of the French Finance Association (AFFI), May 11-13, 2011. Available at SSRN: https://ssrn.com/abstract=1836751 or http://dx.doi.org/10.2139/ssrn.1836751

Amelie Charles

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Adrian Pop (Contact Author)

Université d'Orléans ( email )

Rue de Blois
B.P. 6739
45067 Orleans Cedex 2, Orleans cedex 2 45067
France

Olivier Darné

University of Nantes - Faculty of Business and Economics ( email )

Nantes
France

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