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DCC-Garch Models Using Islamic Market and European Market Indices

Islamic Banking and Finance Review

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Field Value
 
Title DCC-Garch Models Using Islamic Market and European Market Indices
 
Creator Dr. Sabbah Gueddoudj
 
Subject assets returns
Islamic market index
European conventional market
index and dcc-garch model
 
Description The last financial crisis (2007-2008) raises the question of how European stock shocks are distributed and transmitted from developed stock markets to Islamic stock markets. More precisely, the problem related to Islamic finance or any other alternative finance is, whether the shocks to the volatilities in the asset returns constitute substitute or complement in terms of risks strategies. A good understanding of volatilities of asset returns is necessary to analyze and forecast domestic and international investors’ portfolios. The cornerstone of the current paper is the analysis of the dynamic correlations between the European conventional financial indices (as a proxy for globalbenchmark) and Islamic indices. We have chosen European markets since most of the works on this topic have focused on the US market. We have used the Dynamic Conditional Correlations approach to detect any shifts in correlations between the different indices over a recent period (from 07/31/2007 to 08/25/2017). The period includes the most severe financial turbulences (2007-2011) in Europe. Two types of distribution have been tested namely Gaussian distributions versus t-distributions. The paper finds that European and Islamic indices are highly correlated. This point may be useful for the policymakers because of the contagion risk. The results are robust acrossdifferent distributions and the model associated with t-distribution is more relevant. 
 
Publisher Department of Banking and Finance, University of Management & Technology, Lahore, Pakistan
 
Date 2017-11-07
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://journals.umt.edu.pk/index.php/IBFR/article/view/189
10.32350/ibfr.2017.04.01
 
Source Islamic Banking and Finance Review; Vol 4 (2017): IBFR 1437-38H/2017; 01-20
2221-5239
2413-2977
 
Language eng
 
Relation https://journals.umt.edu.pk/index.php/IBFR/article/view/189/182
 
Rights Copyright (c) 2017 Islamic Banking and Finance Review (IBFR)