Are Islamic and Conventional Capital Markets Decoupled? Evidence from Stock and Bonds/Sukuk Markets in Malaysia

Ahmed, H.; Elsayed, A.

Abstract

This study examines the decoupling hypothesis between Islamic and conventional capital markets by analysing the dynamic interdependencies among conventional stock, Islamic stock, bonds and sukuk markets in Malaysia over the period January 3, 2007 to March 31, 2017. Empirical findings on the total spillover index show that, on average, one third of the total forecast error variance attributed to spillovers has affects across four markets, indicating that conventional and Islamic markets are highly interconnected. The conventional stock and bond markets are considered to be the main net transmitters of spillovers towards other markets, whereas the sukuk market is a net receipt of modest levels of return shocks from conventional, Islamic and bond markets throughout the sample period. The interlinkages and connectedness between sukuk and conventional bonds are robust compared with other markets but show variations in the spillovers over the period. While one way to explain the differences in the spillovers between the conventional bond and sukuk indices can be attributed to external factors such as the financial crisis, changes in the legal regime and political uncertainties, another explanation may lie in the differences in the contractual structures of these instruments.

Citation

Ahmed, H., & Elsayed, A. (2019). Are Islamic and Conventional Capital Markets Decoupled? Evidence from Stock and Bonds/Sukuk Markets in Malaysia. The Quarterly Review of Economics and Finance, 74, 56-66. https://doi.org/10.1016/j.qref.2018.04.005

• Journal Article Type: Article
• Acceptance Date: Apr 3, 2018
• Online Publication Date: Apr 18, 2018
• Publication Date: Nov 30, 2019
• Deposit Date: Apr 3, 2018
• Publicly Available Date: Apr 18, 2020
• Journal: Quarterly Review of Economics and Finance
• Print ISSN: 1062-9769
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 74
• Pages: 56-66
• DOI: https://doi.org/10.1016/j.qref.2018.04.005
• Public URL: https://durham-repository.worktribe.com/output/1363162