Islamic vs Conventional Canadian stock markets : what difference ?

NEIFAR, MALIKA (2020): Islamic vs Conventional Canadian stock markets : what difference ?

Abstract

This study empirically assesses the relationship between inflation and stock return in conventional and Islamic Canadian stock markets. The study has covered monthly data for the period 2004:M08−2018 :M4 of canadian economy. We propose a multivariate X-MGARCH or X- MGARCH-X volatility model to assess the dependence of Conventional and Islamic canadian stock market returns on inflation (expected and/or unexpected inflation) and volatility dynamic interdependence of returns (first and second moments). We also examine the constant and dynamic of conditional correlation in both stock market. The main result supports the hypotheses of constant conditional correlation (CCC) and Fisher hypothesis for Islamic canadian stock market. While the Conventional stock market is an efficient one. The volatility spillover is examined estimating an X-DVECH model. The dynamic conditional correlation (DCC) provides evidence of cross border relationship within stocks. We do find also evidence of negative (positive) significant effect of inflation on Islamic (conventional) stock market return volatility.

• Item Type: MPRA Paper
• Language: English
• Keywords: Conventional /Islamic Canadian stock return, Conditional Correlations (CC), Dynamic CC (DCC) and Constant CC models (CCC), Fisher hypothesis, MGARCH -DVECH model, X-MGARCH and X-MGARCH-X models.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

References

Aftab, H., Beg, R. A., Sun, S., & Zhou, Z. (2019). Testing and Predicting Volatility Spillover—A Multivariate GJR-GARCH Approach. Theoretical Economics Letters,, 9, 83-99.

Bauwens, L., Laurent, S., & Rombouts, J. V. (2004). Multivariate GARCH models: a ‎survey. Journal of Applied Econometrics (to appear).

Bera, C. (1980). Efficient Tests for Normality, Homoscedasticity and Serial Independence of Regression Residuals. Economics Letters, 6, 255-259.

Bollerslev, T. (1990). Modelling the coherence in short-run nominal exchange rates: A multivariate generalized ARCH ‎model. Review of Economics and Statistics, 72, 498–505.‎

Bollerslev, T., & Wooldridge, J. M. (1992). Quasi-Maximum Likelihood Estimation and Inference in Dynamic Models with Time-Varying Covariances. Econometric Reviews, 11(2), 143--72.

Bollerslev, T., Chou, R. Y., & Kroner, K. F. (1992). ARCH Modelling in Finance: A Review of the Theory and Empirical Evidence. Journal of Econometrics, 52(5), 5-59.

Bollerslev, T., Engle, R. F., & Wooldridge, J. M. (1988). A capital asset ‎pricing model with time-varying covariances. Journal of Political Economy ‎‎, 96, 116 –131‎.

Bollerslev, T., Engle, R., & Nelson, D. B. (1994). ARCH Models. Handbook of Econometrics, 4,: in R.F. Engle and D. McFadden eds.

Chatrath, A. R. (1997). Stock prices, inflation and output : evidence from India. Applied Financial Economics, 7, 439-445.

Enders, W. ( 2014). Applied Time Series. John Wiley and Sons, Hoboken.

Engle, R. F. (2002). Dynamic conditional correlation: A simple class of ‎multivariate generalized autoregressive conditional heteroskedasticity ‎models. Journal of Business & Economic Statistics, 20, 339–350‎.

Engle, R. F. (2009). Anticipating Correlations: A New Paradigm for Risk Management. Princeton, NJ: Princeton University.

Engle, R., & Granger, C. (1987). Cointegration and error correction representation : Estimation and testing. Econometrica, 55, 251-276.

Fama, E. F. (1981). Stock returns, real activity, inflation, and money. The American Economic Review.

Fama, E. F., & Schwert, G. W. (1977). Asset Returns and Inflation. J. Fin. Econ, 5, 115-146.

Fisher, I. (1930). The Theory of Interest. The Macmillan Company.

Graham, F. C. (1996). Inflation, Real Stock Returns, and Monetary Policy. Applied Financial Economics, 6(1), 29-35.

Neifar, M., & Harzallah, A. (2020). Can Canadian Stock market provide complete hedge against Inflation ? MPRA_Paper_99033.

Samiran, J. (2013). Can Indian stock index return provide a complete hedge against inflation ? International Journal of Research in Management, 1, 96-106.

Silvennoinen, A., & Terasvirta, T. (2009). Multivariate GARCH models. In ‎Handbook of Financial Time Series, ed‎.

Wohlwend, R., & Goller, P. (2011). Finanzanlagen und Inflation. Vaduz :Liechtensteinische Landesbank AG.