Analysing dynamic linkages and hedging strategies between Islamic and conventional sector equity indexes. Issue 25 (28th May 2017)

• Record Type: Journal Article
• Authors: Mensi, Walid; Hammoudeh, Shawkat; Sensoy, Ahmet; Yoon, Seong-Min
• Is Part Of: Applied economics. Volume 49:Issue 25(2017)
• Page Start: 2456
• Page End: 2479
• Publication Date: 2017-05-28
• Subjects: Sectoral Islamic index -- conventional index -- cross-correlation analysis -- diversification -- GARCH-cDCC model; C58 -- F36 -- G14 -- G15; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2016.1240349
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This study analyses the dynamic spillovers across 10 Dow Jones Islamic and conventional sector index pairs. Using various multivariate GARCH models, the results show significant time-varying conditional correlations for all the pairs. Moreover, there is evidence that the conditional correlations for all the sector pairs, except those of the Telecommunication and Utilities sectors, increase after the onset of the global financial crisis (GFC), suggesting non-subsiding risks, contagion effects and gradual greater financial linkages. The Islamic sectors' risk exposure can be effectively hedged over time in diversified portfolios containing conventional sector stocks. These results provide several practical implications for portfolio managers and policymakers in regard to optimal asset allocations, portfolio risk management and the diversification benefits among these markets.