Islamic and Conventional equity market movements after the financial crisis: Evidence from newly launched MSCI indices

Hafiz Al Asad Bin Hoque; Viktor Manahov; Sarkar Kabir; E  Abdelbari

doi:10.1111/fmii.12075

Islamic and Conventional equity market movements after the financial crisis: Evidence from newly launched MSCI indices

Hafiz Al Asad Bin Hoque, Viktor Manahov, Sarkar Kabir, E Abdelbari

Management

Research output: Contribution to journal › Article › peer-review

Abstract

This paper examines the relationship between the Islamic and conventional equity indices by employing the newly launched MSCI Global Islamic Indices which began in 2008. We argue for the case of cointegration supported by fundamental, category and habitat theories, and against cointegration due to the fundamental difference between Islamic and conventional stocks in terms of debt ratio, accounts receivable and interest bearing securities. We find Islamic and conventional equity markets move together despite fundamental differences and given that market microstructure, dividends, capital gains, taxation and governance systems are different across the markets. Almost simultaneous movement of the permanent and cycle components of Islamic and mainstream equity indices has been supported by the application of the Beveridge Nelson (BN) time series decomposition technique. Theoretically, the volatility of Islamic equities should be lower due to their low leverage ratio. Surprisingly,permanent parts of the Islamic indices appear to be more volatile during the crisis period and less volatile during the post-crisis period.

Original language	English
Pages (from-to)	217-252
Number of pages	25
Journal	Financial Markets, Institutions and Instruments
Volume	25
Issue number	4
DOIs	https://doi.org/10.1111/fmii.12075
Publication status	Published - 12 Oct 2016

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10.1111/fmii.12075

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title = "Islamic and Conventional equity market movements after the financial crisis: Evidence from newly launched MSCI indices",

abstract = "This paper examines the relationship between the Islamic and conventional equity indices by employing the newly launched MSCI Global Islamic Indices which began in 2008. We argue for the case of cointegration supported by fundamental, category and habitat theories, and against cointegration due to the fundamental difference between Islamic and conventional stocks in terms of debt ratio, accounts receivable and interest bearing securities. We find Islamic and conventional equity markets move together despite fundamental differences and given that market microstructure, dividends, capital gains, taxation and governance systems are different across the markets. Almost simultaneous movement of the permanent and cycle components of Islamic and mainstream equity indices has been supported by the application of the Beveridge Nelson (BN) time series decomposition technique. Theoretically, the volatility of Islamic equities should be lower due to their low leverage ratio. Surprisingly,permanent parts of the Islamic indices appear to be more volatile during the crisis period and less volatile during the post-crisis period.",

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AU - Hoque, Hafiz Al Asad Bin

AU - Manahov, Viktor

AU - Kabir, Sarkar

AU - Abdelbari, E

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AB - This paper examines the relationship between the Islamic and conventional equity indices by employing the newly launched MSCI Global Islamic Indices which began in 2008. We argue for the case of cointegration supported by fundamental, category and habitat theories, and against cointegration due to the fundamental difference between Islamic and conventional stocks in terms of debt ratio, accounts receivable and interest bearing securities. We find Islamic and conventional equity markets move together despite fundamental differences and given that market microstructure, dividends, capital gains, taxation and governance systems are different across the markets. Almost simultaneous movement of the permanent and cycle components of Islamic and mainstream equity indices has been supported by the application of the Beveridge Nelson (BN) time series decomposition technique. Theoretically, the volatility of Islamic equities should be lower due to their low leverage ratio. Surprisingly,permanent parts of the Islamic indices appear to be more volatile during the crisis period and less volatile during the post-crisis period.

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