TY - JOUR
T1 - Switching spillovers and connectedness between Sukuk and international Islamic stock markets
AU - Mensi, Walid
AU - Lee, Yeonjeong
AU - Al-Kharusi, Sami
AU - Yoon, Seong Min
N1 - Publisher Copyright:
© 2024 Elsevier B.V.
PY - 2024/4/1
Y1 - 2024/4/1
N2 - This study examines the switching volatility spillovers and connectedness between the Dow Jones Sukuk and global and two regional Islamic stock markets (World, Asia, and Europe). Using the Markov switching-vector autoregression and spillover index models, we show that Islamic stock markets are significantly affected by their own shocks under the low-volatility regime (Regime 1), whereas the results are insignificant under the high-volatility regime (Regime 2), except for the World Islamic markets. Similarly, Sukuk is affected by its own shocks, and the magnitude of the spillover increases in a high-volatility regime. Sukuk has an insignificant impact on Islamic stocks in Regime 1 and the effect becomes significant in Regime 2. Moreover, the likelihood of transition is more persistent in Regime 1 than in Regime 2. In addition, the shifts from one regime to another are more persistent than those in the opposite sense. Furthermore, the World Islamic stock markets are the net contributors of spillover to Sukuk for all regimes, and their capacity for spillover increases in Regime 2, whereas Sukuk is the net receiver of spillover for both regimes. In contrast, the ability of the European and Asian Islamic markets as net contributors decreases in Regime 2, and the contribution of Sukuk spillovers increases. Portfolio risk analysis under low- and high-volatility regimes is also discussed.
AB - This study examines the switching volatility spillovers and connectedness between the Dow Jones Sukuk and global and two regional Islamic stock markets (World, Asia, and Europe). Using the Markov switching-vector autoregression and spillover index models, we show that Islamic stock markets are significantly affected by their own shocks under the low-volatility regime (Regime 1), whereas the results are insignificant under the high-volatility regime (Regime 2), except for the World Islamic markets. Similarly, Sukuk is affected by its own shocks, and the magnitude of the spillover increases in a high-volatility regime. Sukuk has an insignificant impact on Islamic stocks in Regime 1 and the effect becomes significant in Regime 2. Moreover, the likelihood of transition is more persistent in Regime 1 than in Regime 2. In addition, the shifts from one regime to another are more persistent than those in the opposite sense. Furthermore, the World Islamic stock markets are the net contributors of spillover to Sukuk for all regimes, and their capacity for spillover increases in Regime 2, whereas Sukuk is the net receiver of spillover for both regimes. In contrast, the ability of the European and Asian Islamic markets as net contributors decreases in Regime 2, and the contribution of Sukuk spillovers increases. Portfolio risk analysis under low- and high-volatility regimes is also discussed.
KW - Downside risk
KW - Islamic stocks
KW - MS-VAR model
KW - Regime switching
KW - Spillovers
KW - Sukuk
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UR - https://www.mendeley.com/catalogue/9efd00df-f114-3103-bc9c-c02a75bf574c/
U2 - 10.1016/j.pacfin.2024.102318
DO - 10.1016/j.pacfin.2024.102318
M3 - Article
AN - SCOPUS:85186994048
SN - 0927-538X
VL - 84
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
M1 - 102318
ER -