Dynamic correlations and volatility linkages between stocks and sukuk: Evidence from international markets

Review of Financial Economics - Tập 31 - Trang 34-44 - 2016
Alex Sclip1, Alberto Dreassi2, Stefano Miani1, Andrea Paltrinieri3
1University of Udine, Italy
2University of Trieste, Italy
3Banking and Finance, University of Udine, Via Tomadini 30/A, 33100 Udine, Italy

Tóm tắt

AbstractAn understanding of volatility and co‐movements in financial markets is important for portfolio allocation and risk management practices. The current financial crisis caused a shrinkage in values of most assets, an increased volatility and a threat to the survival of several institutional investors. Managing risks and returns within the classic portfolio theory, when correlations across securities soar, is increasingly challenging. In this paper, we investigate the volatility behavior and the co‐movements between sukuk and international stock indexes. Symmetric multivariate GARCH models with dynamic conditional correlations (DCC) were estimated under Student‐t distribution. We provide evidence of high correlations between sukuk and US and EU stock markets, without finding the well‐known flight to quality behavior affecting Islamic bonds. We also show that volatility linkages between sukuk and regional market indexes are higher during financial crisis. We argue that investors could obtain diversification benefits including sukuk in a well‐diversified equity portfolio, given their lower volatility compared to equity. But higher volatility linkages and dynamic correlations during financial crises show that they are hybrid instruments between bonds and equity. Our findings are relevant for institutional investors and asset managers that include Islamic bonds in a diversified portfolio.

Tài liệu tham khảo

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Review of Financial Economics

Tập 31

34-44

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