Resilience of Islamic Equities against Uncertainty

This research aims to analyze the resilience of Islamic Equities against the economy and non-economic uncertainty within the past decades. Islamic Equities are represented by the developed, emerging, and frontier market S&P BMI Shariah Index. The World Uncertainty Index and economic policy uncertainty measure uncertainty. This paper uses a time-series approach utilizing the Vector Autoregressive (VAR) model to estimate the resilience of Islamic equities based on quarterly stock return, the World Uncertainty Index, and the Economic Uncertainty Index from 2013 to 2023. It shows that Islamic equities are resilient to economic uncertainty but not non-economic uncertainty

Calendar anomalies, global uncertainty and volatility the impact on selected Islamic stock market returns / Norashikin Adam

The purpose of this study is to investigate the impact of calendar anomalies, global uncertainty and volatility on selected Islamic stock market returns. Efficient Market Hypothesis states that no abnormal profit can exist in any form of efficient market. Alternatively, Adaptive Market Hypothesis suggests there is chance of abnormal profit that can be earned from existence of calendar anomalies. Given the two competing theories, this study presents an attempt to test whether calendar anomalies exist in the Islamic stock market returns. This study investigates three different types of calendar anomalies: the day of the week effect, the month effect, and the holiday effect. Besides, this study also examines the impact of global uncertainty and volatility by using Global Economic Policy Uncertainty (GEPU) and Volatility Index (VIX) as proxies across 10 Islamic stock market returns- Dow Jones Islamic Market (DJIM), Saudi Arabia, Malaysia, United Arab Emirates (UAE), Kuwait, Qatar, Turkey, Indonesia, Bahrain, Pakistan—for 20 years from 25 September 2000 to 24 September 2020. For calendar anomalies, this study used GARCH for the baseline models and EGARCH for the robustness test. For global uncertainty and volatility, this study relied on Markov Switching Model for the baseline models and Wavelet Coherence for the robustness test. The findings inferred that calendar anomalies are present in Islamic stock market returns for DJIM, Indonesia, and Pakistan (day of the week effect), all countries except Kuwait, Qatar, and Pakistan (month effect), and Indonesia, the UAE, and Qatar (holiday effect). The findings also showed that global uncertainty captured by Global Economic Policy Uncertainty had significant negative impacts on all countries except Saudi Arabia, Kuwait, and Qatar. Furthermore, volatility presented by the Volatility Index had significant impacts on all countries except Pakistan, Kuwait, the UAE, and Qatar. Overall, calendar anomalies, global uncertainty and volatility have significant impact on the Islamic stock market returns in this study. The findings can assist investors who seek to diversify their portfolios and achieve their investment goals, as well as for investors seeking to diversify their portfolios so as to maximise return and minimise risk. The results also provide information to policymakers about the current state of Islamic stock market returns

Volatility transmission between Islamic and conventional equity markets : evidence from causality-in-variance test

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.http://www.tandfonline.com/loi/raec202016-10-31hb201

Profit Theory: the Islamic viewpoint

In view of a unique relationship of unity and divergence between Islam and capitalism, the paper takes a hurried look at the current state of profit theory in the mainstream economics. Here it identifies a few issues which include the concept of profit, its source and its relationship with the notion of entrepreneurship. It argues that profit theory with reference to these issues has run into confusion and controversy with the rise into prominence of the modern corporations. Profit as a surplus over costs arises because of dynamic change and is institutional in its appropriation going largely to the block of shareholders that controls the corporation.Profit; Interest; wages; entrepreneur; profit sharing model

Radical Islamic Terrorism in the Middle East and Its Direct Costs on Western Financial Markets

Close examination of the behaviour of participants in financial markets in the aftermath of terrorist attacks is a valuable line of enquiry. In this paper, we bring together insights from field of finance and politics. Specifically, we examine trading patterns on highly liquid insurance-type financial instruments around a specific terrorist event. This approach provides an insight into risk perception around political violence and allows us to answer a number of key questions on the impact of terrorist attacks on economies and societies. When examined and processed, intraday financial trade data yields valuable empirical evidence on immediate reactions to the threat posed by terrorist groups. The methodology applied in this paper also tells us much about the geographical resonance of terrorist events. We clearly show that fear of economic disruption can be activated in Western markets by events that are often geographically remote. Importantly, these datasets allow us to judge the vulnerability of financial markets to terrorist attack. This potentially allows public authorities to safeguard our interests more effectively. Financial markets are one important element of a "neglected home front" and the risks posed by disruption to those markets are such as to merit our urgent attention.

Navigating Uncertainty: The Role of Digital Assets

This research studies the dynamic connectedness among digital assets proxied by non-fungible tokens (NFTs), Islamic cryptocurrencies, and conventional cryptocurrencies with the US Economic Policy Uncertainty (EPU) and Geopolitical Risk (GPR) indices. We also examine the hedge and safe haven properties of the aforementioned digital assets against the uncertainties. Using wavelet coherence analysis from 19 January 2018 to 31 October 2023, we show that NFTs react heterogeneously to changes in uncertainties while cryptocurrency reacts inversely. NFTs and conventional cryptocurrencies can only act as diversifiers, but neither as a hedge nor a safe haven against uncertainties. However, Islamic cryptocurrencies have the potential to act as both a hedge and a safe haven against uncertainties. Our findings shed light on the role of emerging digital assets in formulating investment strategies and ensuring stability in the financial markets. Originality/Value: Given the immense potential of digital assets, a remaining research gap concerns their interplay with uncertainty. In other words, given the presence of extreme market turmoil over recent years, no consensus is present in terms of highlighting the dynamic co-movement between digital assets such as NFT, Islamic cryptocurrencies, and global uncertainty factors. In addition to that, the lead-lag relationship among digital assets and uncertainties are also unknown till date. The current study fills this gap by providing robust evidence

Niche Markets and Their Lessons

Markets are full of nooks and crannies. Out of the glare of the big economies and their public exchanges, markets specializing by financial product, activity, or industry thrive, often attracting little by way of formal regulatory oversight. But there is another kind of specialized market, one which is geographically and politically determined albeit internationally focused. Luxembourg, Ireland, Dubai, Bahrain, Malaysia, Singapore, Switzerland, among others, these are some of the world’s niche markets.It is a hard business being a niche market, operating in a competitive and often unforgiving environment, engaging in constant repositioning and facing inherent limitations on growth. Surprisingly, perhaps, there are lots of niche markets and a very diverse grouping they are, deploying a variety of survival strategies. In all cases, state capitalism, in various guises, supports these markets. In earlier times, reputation, a friendly regulator, and good business practices might have sufficed. Now, there is a new dynamic. This chapter in a new book, International Capital Markets: Law and Institutions (Oxford University Press, 2014), examines the characteristics of niche markets, such as a high tolerance for legal pluralism and the role of state capitalism, the vulnerabilities of niche markets, especially to change, and the secrets of their success

The resilience of ethical assets against different uncertainty shocks.

The focus of this research is to examine the safe-haven properties of seven ethical and conventional asset classes using two sophisticated techniques: quantile coherence and Wavelet coherence. We analyze data ranging from October 3, 2011, to September 30, 2021, that encapsulates several global risk events. The results exhibit either positive or neutral associations between most assets and the Geopolitical Risk (GPR), indicating their safe haven capabilities against the GPR shocks. Notably, the coherence observed between the Economic Policy Uncertainty (EPU) and these assets reveals a positive correlation during bearish markets (monthly frequency) and normal and bullish markets (weekly frequency). Furthermore, only the S&P Green Bond (SPGRNB) as well as S&P Global Clean Energy (SPCE) indices demonstrate protective attributes against EPU shocks during COVID-19. Conversely, market volatility (VIX) was found to negatively impact all asset classes except SPGRNB, which indicates the non-idiosyncratic nature of VIX shocks. Consequently, investors and fund managers operating in ethical markets may consider optimizing their portfolios to shield their wealth amidst instances of extreme and enduring shocks. [Abstract copyright: © 2024 The Authors.