An Empirical Study of Islamic Equity as a Better Alternative During Crisis Using Multivariate GARCH DCC

26 Pages Posted: 9 Apr 2018

See all articles by Syed Aun R. Rizvi

Syed Aun R. Rizvi

Lahore University of Management Sciences (LUMS)

Shaista Arshad

University of Nottingham Malaysia Campus

Date Written: May 1, 2014

Abstract

Risk Sharing is the core of the Islamic finance, the closest modern equivalent being equity investments. Through the decades of Islamic Finance development scholars have stressed on equity as the most beneficial financial mechanism while most accept modern joint-stock companies as quasi Mush rakah and Mu rabah forms, but this segment is still small in Islamic finance. Multitude of reasons contributes to it, primarily, the risk averseness and myth of equities as more risky alternate. This paper attempts to investigate this myth utilizing MGARCH DCC method, by studying the volatilities and correlations of Islamic indices over a period of twelve years. The findings are promising, suggesting a low moving correlation between the conventional and Islamic indices. The results substantiate the authors’ argument, that during crisis, Islamic indices provide though not complete, but partial insulation, thus a safer haven. This bodes well for a hugely untapped Islamic alternate investment avenue for exploration.

Keywords: Islamic Equity Market, Global Crisis, Multivariate GARCH Dynamic Conditional Correlations, Equity Investments

JEL Classification: O16, C87

Suggested Citation

Rizvi, Syed Aun R. and Arshad, Shaista, An Empirical Study of Islamic Equity as a Better Alternative During Crisis Using Multivariate GARCH DCC (May 1, 2014). Islamic Economic Studies, Vol. 22, No. 1, 2014, Available at SSRN: https://ssrn.com/abstract=3158592

Syed Aun R. Rizvi (Contact Author)

Lahore University of Management Sciences (LUMS)

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

Shaista Arshad

University of Nottingham Malaysia Campus

Jalan Broga
Semenyih, 43500
Malaysia

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