Comparing Islamic and conventional stock markets in GCC: a TVP-VAR analysis
Abstract
Purpose
This study investigates the dynamic interdependence between Islamic and conventional stock markets in the Gulf Cooperation Council (GCC) economies and the influence of global financial uncertainties on this interconnection.
Design/methodology/approach
The study employs the time-varying parameter vector autoregressions (TVP-VAR) technique and analyzes daily data from December 1, 2008 to July 14, 2021.
Findings
The research reveals robust interconnectedness within individual countries between Islamic and conventional stock markets, particularly during crises. Islamic stock markets exhibit greater susceptibility to spillover effects compared to conventional stocks. The UAE and Kingdom of Saudi Arabia (KSA) stock markets are identified as net transmitters of spillovers, while Oman, Bahrain and Kuwait receive more spillovers than they transmit. Global financial uncertainty measures (GVZ, USEPU and UKEPU) positively influence financial market interconnectedness, with EVZ exhibiting a negative impact while VIX and OVX remain statistically insignificant.
Practical implications
Investors and portfolio managers in Oman, Bahrain and Kuwait should carefully evaluate the UAE and KSA markets before making investment decisions due to the latter's role as net transmitters in the region. Additionally, it is emphasized that Islamic and conventional stocks should not be considered interchangeable asset classes for risk hedging.
Social implications
Investors must be aware that Islamic and conventional stocks cannot be used as an alternative asset class to hedge risk.
Originality/value
The present article offers valuable insights for practitioners and researchers delving into the comparative analysis of Islamic and conventional stock markets within the GCC context. It enhances our comprehension of the dynamic interdependence between Islamic and conventional stock markets in the GCC economies and the impact of global financial uncertainties on this intricate relationship.
Keywords
Acknowledgements
The authors extend their sincere appreciation to the Researchers Supporting Project number (RSPD2024R1038), King Saud University, Riyadh, Saudi Arabia for the financial support.
Citation
Naeem, M.A., Khan, S. and Rehman, M.Z. (2024), "Comparing Islamic and conventional stock markets in GCC: a TVP-VAR analysis", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-08-2023-1327
Publisher
:Emerald Publishing Limited
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