Abstract:
This study examines whether a volatility/risk transmission exists between
the Dow Jones Islamic stock and three conventional stock markets for the
United States, Europe and Asia during the pre- and the in- and post-2008
crisis periods. It also explores the volatility spillover dynamics between
those markets and US Monetary policy, oil prices, global financial risk and
uncertainty factors. The recently developed Hafner and Herwartz (2006)’s
causality-in-variance test provides evidence of risk transfers between
these seemingly different equity markets, indicating a contagion between
them during the full sample and the subperiods. The volatility structure of
these markets is dominated by short-run volatility in the first period and by
high long-run volatility in the second period. The volatility impulse
response analysis indicates a similar volatility transmission pattern
although it is characterized by a more volatile and short-lived structure
in the second period. It also appears that the Islamic equity market
responds to shocks from the risk factors and not from the oil price and
the US economic policy uncertainty index during both periods.
