Testing for Multifractality of Islamic Stock Markets

Posted: 15 Nov 2017

See all articles by Foued Saâdaoui

Foued Saâdaoui

Department of Statistics, Faculty of Sciences, King Abdulaziz University; University of Sousse; Saudi Electronic University

Date Written: October 22, 2017

Abstract

Studying the power-law scaling of financial time series is a promising area of econophysics, which has often contributed to the understanding of the intricate features of the global markets. In this article, we examine the multifractality of some financial processes and the underlying formation mechanisms in the context of Islamic equity markets. The well-known Multifractal Detrended Fluctuation Analysis (MF-DFA) is used to investigate the self-similar properties of two Dow Jones Islamic Markets Indexes (DJIM). The results prove that both indexes exhibit multifractal properties. By discussing the sources of the multifractality, we find that it is related to the occurrence of extreme values, the long-range dependency of autocorrelations and the fat-tailed distribution of the returns. These results have several important implications for analysts and decision makers in modelling the dynamics of Islamic markets, thus recommending efficient asset allocation plans to investors dealing with Islamic equity markets.

Keywords: MF-DFA, Multifractal returns, Power law autocorrelation, Extreme values, Islamic financial markets

JEL Classification: C46, C62

Suggested Citation

Saâdaoui, Foued, Testing for Multifractality of Islamic Stock Markets (October 22, 2017). Available at SSRN: https://ssrn.com/abstract=3069506 or http://dx.doi.org/10.2139/ssrn.3069506

Foued Saâdaoui (Contact Author)

Department of Statistics, Faculty of Sciences, King Abdulaziz University ( email )

P.O.Box 80200
Jeddah, 21589
Saudi Arabia

University of Sousse ( email )

rue Abdelaziz el Behi
Sousse, Sousse 4000
Tunisia

Saudi Electronic University ( email )

JEDDAH, AR Ar Riyadh 1161
Saudi Arabia

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