Intensity of Volatility Linkages in Islamic and Conventional Markets

61 Pages Posted: 27 Jan 2017

See all articles by Shumi M. Akhtar

Shumi M. Akhtar

The University of Sydney

Farida Akhtar

Curtin University

Maria Jahromi

Australian National University (ANU)

Kose John

New York University (NYU) - Department of Finance

Date Written: December 29, 2016

Abstract

Characteristics of Islamic finance, such as a smaller set of shared information and a lower degree of cross-market hedging, reduce volatility linkages (correlations) between Islamic and conventional stocks, bonds and bills. We use a stochastic volatility model in a Generalized Methods of Moments framework as well as other volatility proxies to estimate volatility linkages. We are the first to document that including at least one Islamic asset lowers volatility linkages by up to 7.17 percentage points, after controlling for country and asset-specific characteristics. Results are stronger during financial crises and are not driven by the oil sector.

Keywords: Volatility Correlations, International Markets, Contagion, Stochastic Volatility, Islamic Finance

JEL Classification: G1

Suggested Citation

Akhtar, Shumi M. and Akhtar, Farida and Jahromi, Maria and John, Kose, Intensity of Volatility Linkages in Islamic and Conventional Markets (December 29, 2016). Available at SSRN: https://ssrn.com/abstract=2906546 or http://dx.doi.org/10.2139/ssrn.2906546

Shumi M. Akhtar (Contact Author)

The University of Sydney ( email )

University of Sydney Business School
corner of Codrington Street and Darlington Street
Chippendale, NSW 2006
Australia
61290369309 (Phone)

HOME PAGE: http://www.firn.org.au

Farida Akhtar

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

Maria Jahromi

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

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