Resilience of Islamic and Conventional Equity Markets in Turbulent Times

Abstract

How resilient are Islamic and conventional equity markets in turbulent times such as financial crises and periods of financial distress? Findings from a unique dataset of six countries/regions suggest that the impact of a crisis on Islamic equity markets can be up to 77% lower during most financial crises and periods of financial distress due to lower leverage, a more conservative approach to risk management and an emphasis on ethics. Results are stronger during early stages of financial crises and for countries that are more directly affected by a crisis. These findings also hold during the early stages of a public health crisis such as the COVID-19 pandemic. Islamic equity markets are therefore relatively more stable during turbulent times related to financial crises and financial distress, although investors need to be cautious with Islamic assets during asset bubbles and apply appropriate risk management strategies.

Keywords: Financial Crisis, Financial Distress, Islamic Finance, Resilience, Equity Market, Stock Indices

JEL Classification: G01