Do Islamic stocks and commodity markets comove at different investment horizons ? evidence from wavelet time-frequency approach

Khan, Aftab and Masih, Mansur (2019): Do Islamic stocks and commodity markets comove at different investment horizons ? evidence from wavelet time-frequency approach.

Abstract

The financial crisis during the last decade did not only affect the stock markets but also the commodity markets. The behavior and relation of these two markets have changed during and after the financial crisis. Therefore, an understanding of the relationship between commodities and stock markets is crucial, especially during the crisis, when investors are looking for alternative investment opportunities. In this paper, we focus on commodity markets and their relation with Islamic stock markets during the financial crisis. This is one of the first attempts to study this relationship in the important and growing area of Islamic capital markets. The paper applies the recent wavelet analysis to Dow Jones Islamic index and two commodity sector indices (Energy and Precious Metal) and it aims to reveal how they commoved in the period of the Global Financial crisis, which began in the USA as the Subprime mortgage crisis. Empirical results revealed that Islamic stock market commoved to a certain extent with the commodity indices during the whole period. Also, the wavelet correlation of stock markets and commodities differ significantly when talking about different investment horizons. We observed that stock markets are in general more correlated at different horizons with Energy sector than with Precious Metal. Further, based on wavelet coherence, it is observed that the co-movement between DJ Islamic and Energy Sector is significantly more compared to the co-movement with the Precious Metal commodity sector at different time scales and frequencies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic stocks, commodity markets, wavelets
• 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; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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