Regime switching behavior of volatilities of Islamic equities: evidence from Markov- Switching GARCH models for some selected broad based indices

Reza, Md. Ridwan and Masih, Mansur (2017): Regime switching behavior of volatilities of Islamic equities: evidence from Markov- Switching GARCH models for some selected broad based indices.

Abstract

In this era of shaky global economic and financial conditions for about a decade now since the global financial crisis 2008, how the volatilities of Islamic equities worldwide are behaving, especially in terms of their regime changing behavior, if any, is the main issue of concern in this paper. To this end, a relatively novel technique, namely, Markov regime switching GARCH (MSGARCH) is applied to some selected broad based Islamic equity indices from both advanced and emerging world and of their combinations. The results tend to indicate that in general there is no persistence in any particular regime to prevail, rather a high regime switching behavior between volatile and less volatile regimes are present in Islamic equities around the world. This perhaps reflects the prolonged uncertainties prevailing in the world economies and therefore implies higher risk for the investors in predicting their investment outcome.

• Item Type: MPRA Paper
• Language: English
• Keywords: volatilities of Islamic equities, Markov regime switching, MSGARCH, GARCH
• 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 > G15 - International Financial Markets

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