Abstract:
The nancial crisis has fueled interest in alternatives to traditional
asset classes that might be less a ected by large market gyrations and,
thus, provide for a less volatile development of a portfolio. One attempt
at selecting stocks that are less prone to extreme risks, is obeyance of
Islamic Sharia rules. In this light, we investigate the statistical properties
of the DJIM index and explore its volatility dynamics using a
number of up-to-date statistical models allowing for long memory and
regime-switching dynamics. We nd that the DJIM shares all stylized
facts of traditional asset classes, and estimation results and forecasting
performance for various volatility models are also in line with prevalent
ndings in the literature. Overall, the relatively new Markov-switching
multifractal model performs best under the majority of time horizons
and loss criteria. Long memory GARCH-type models always improve
upon the short-memory GARCH speci cation and additionally allowing
for regime changes can further improve their performance.
