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Spillovers between the Islamic gold-backed cryptocurrencies and equity markets during the COVID-19: A sectorial analysis

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Abstract

This study examines the return and volatility transmission between the Islamic gold-backed cryptocurrencies (Onegram and X8X) and global Islamic equity sectors during the pre-COVID and COVID-19 periods. We also estimate the optimal weights, hedge ratios, and hedging effectiveness for all pairs of markets. Our results suggest that the COVID-19 crisis intensified the spillover effect between the selected Islamic assets. We show that investors could increase their allocations in Onegram gold-backed cryptocurrency to reduce the risk of the equity sector portfolio during the COVID-19 pandemic. Moreover, the hedging costs for all pairs have increased during the COVID-19 period in comparison to the pre-pandemic level. Finally, the analysis of hedging effectiveness suggests that investors can reduce the risk of Islamic sectorial equity portfolios by adding the Islamic Sharia-based cryptocurrencies during both sample periods. <br/

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... Effect of stablecoin adoption on key macroeconomic factors in Montenegro. 22 Yousaf and Yarovaya [32] Spillovers between the Islamic gold-backed cryptocurrencies and equity markets during the COVID-19: A sectorial analysis ...
... These findings are in line with other studies, suggesting regular cryptocurrencies are rather speculative and volatile assets [33,34], whereas stablecoins can serve as a safe haven [28,29]. Additionally, Yousaf and Yarovaya [32] find varying return and volatility spillovers between gold-backed stablecoins and equities in pre-COVID and COVID periods. ...
... In the third cluster (the relationship of stablecoins with (non-crypto) macroeconomic factors), studies utilize metrics already seen in both other clusters, focusing on price volatility and trading value [30] and spillover connectedness [32], employing regression models (GARCH, EGARCH, SVAR, VAR-BEKK-AGARCH), as well as fixed effect models, variance decomposition, or a Keynesian macroeconomic model [30][31][32]. Only two studies include the timeframe from November 2018 until the peak, which seems odd considering three studies build on data between March 2017 to January 2018. ...
Article
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This study reviews the current state of empirical literature on stablecoins. Based on a sample of 22 peer-reviewed articles, we analyze statistical approaches, data sources, variables, and metrics, as well as stablecoin types investigated and future research avenues. The analysis reveals three major clusters: (1) studies on the stability or volatility of different stablecoins, their designs, and safe-haven-properties, (2) the interrelations of stablecoins with other crypto assets and markets, specifically Bitcoin, and (3) the relationship of stablecoins with (non-crypto) macroeconomic factors. Based on our analysis, we note future research should explore diverse methodological approaches, data sources, different stablecoins, or more granular datasets and identify five topics we consider most significant and promising: (1) the use of stablecoins in emerging markets, (2) the effect of stablecoins on the stability of currencies, (3) analyses of stablecoin users, (4) adoption and use cases of stablecoins outside of crypto markets, and (5) algorithmic stablecoins.
... Moreover, the geopolitical risk intensifies the dependency of GBC to gold returns and volatility. Yousaf and Yarovaya (2021) investigate the return and volatility spillover between the Islamic gold-backed cryptocurrencies (one gram and X8X) and global Islamic equity sectors during the pre-COVID and COVID-19 periods. Indeed, they explore the optimal weights, hedge ratios and hedging effectiveness for all pairs of markets. ...
... Hence, several works have studied the phenomenon of volatility transmission between commodities, Islamic and conventional stocks and cryptocurrencies markets (Trichilli et al., 2015;Yi et al., 2018;Trichilli et al., 2018;Trichilli et al., 2020;Catania and Sandholdt, 2019;Mensi et al., 2020;Trichilli and Boujelbène Abbes, 2022). There are also several studies that examine the contagion risks and spillover effects in conventional and Islamic gold-backed cryptocurrencies markets as the studies of Yousaf and Yarovaya (2021) and Nugroho (2021). ...
... Indeed, the present study attempts to investigate the relationship between Dow Jones Islamic Market World Index, Islamic gold-backed cryptocurrencies and blockchain halal index in the presence of state (regime) dynamics. The choice of these two Islamic gold-backed cryptocurrencies is due to the fact that these are highly capitalized and well-known in the Islamic world, and we have followed other authors that have used the same Islamic currencies for their analysis: Aloui et al. (2020) and Yousaf and Yarovaya (2021). Moreover, for the robustness of our results, we have included the Dow Jones Islamic Market World Index compared to Islamic gold-backed cryptocurrencies. ...
Article
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Purpose The purpose of this paper is to explore the relationship between Dow Jones Islamic Market World Index, Islamic gold-backed cryptocurrencies and halal chain in the presence of state (regime) dynamics. Design/methodology/approach The authors have used the Markov-switching model to identify bull and bear market regimes. Moreover, the dynamic conditional correlation, the Baba, Engle, Kraft and Kroner- generalized autoregressive conditional heteroskedasticity and the wavelet coherence models are applied to detect the presence of spillover and contagion effects. Findings The findings indicate various patterns of spillover between halal chain, Dow Jones Islamic Market World Index and Islamic gold-backed cryptocurrencies in high and low volatility regimes, especially during the COVID-19 pandemic. Indeed, the contagion dynamics depend on the bull or bear periods of markets. Practical implications These present empirical findings are important for current and potential traders in gold-backed cryptocurrencies in that they facilitate a better understanding of this new type of assets. Indeed, halal chain is a safe haven asset that should be combined with Islamic gold-backed cryptocurrencies for better performance in portfolio optimization and hedging, mainly during the COVID-19 period. Originality/value To the best of the authors’ knowledge, this paper is the first research on the impact of the halal chain on the Dow Jones Islamic Market World Index return, Islamic gold-backed cryptocurrencies returns in the bear and bull markets around the global crisis caused by the COVID-19 pandemic.
... Gharib et al. (2021) have explored the contagion effect on gold markets and their response to the COVID-19 pandemic. Particularly, Yousaf and Yarovaya (2022) studied the contribution of Islamic gold-backed cryptocurrencies in reducing portfolio risks during the COVID-19 pandemic. While Jalan et al. (2021) have explored gold-backed cryptocurrencies and compared their performance with Bitcoin and Tether during the pandemic. ...
... Along the same lines, the empirical findings of this research show that herding behavior became more considerable after the pandemic outbreak, except for the Ethereum market. These results are in accordance with previous studies on the COVID-19 pandemic effect on cryptocurrency markets (Salim Lahmiri and Bekiros, 2020), Gold (Kristoufek and Vosvrda, 2016), and gold-backed cryptocurrency markets (Yousaf and Yarovaya, 2022;Jalan et al., 2021) during the COVID-19 pandemic. ...
Article
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This study analyses and compares the behavior of the gold-backed, conventional cryptocurrency, and gold markets capable of detecting the existence of herding and deducing the efficiency degree. In addition, this empirical work tried to examine the COVID-19 pandemic's influence on both cryptocurrency performances. This work developed a new method that discloses herding biases using persistence and efficiency metrics. Besides, this paper investigated the nonlinear dynamic properties of the gold-backed, conventional cryptocurrencies and Gold by estimating the Multifractal Detrended Fluctuation Analysis (MFDFA). It also assessed the inefficiency of these markets through an efficiency index (IEI) and tested the effect of COVID-19 on their dynamics. The findings of this investigation indicate that the gold-backed cryptocurrency (X8X) is the most efficient market in the long-term trading market. However, the conventional cryptocurrency market (Bitcoin) is the most efficient on the short trade horizon. Besides, gold-backed cryptocurrency markets present a smaller level of herding behavior than conventional cryptocurrencies on tall scales. Nevertheless, we noted the positive and negative effects of the pandemic on each cryptocurrency market dynamics. To the best of the authors' knowledge, this study is the first investigation that uses multifractal analysis to quantify the impact of the COVID-19 spread on gold-backed cryptocurrencies and detects the presence of herding behavior.
... As discussed earlier, the potential of Islamic gold-backed digital currencies is not studied for their potential to diversify portfolios of Islamic investors and manager until recently, where Yousaf and Yarovaya (2022) and Aloui et al. (2021) study the Islamic cryptocurrencies and find them to be a diversifier for Islamic portfolio investors and managers. However, in their works, they use global Islamic equity indies as a proxy of the Islamic equity indices which could possess different return and risk characteristics from Indonesian Islamic markets. ...
... This paper contributes to the literature gap by studying whether the Islamic goldbacked cryptocurrencies could provide any hedging opportunities to Indonesian investors especially during turbulent times like COVID-19 period. As far as Islamic gold-backed digital currencies are concerned, following Yousaf and Yarovaya (2022); and Aloui et al. (2021), we employ Onegram and X8X. These two currencies are backed by gold. ...
Article
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This study examines whether Islamic gold-backed cryptocurrencies (Onegram and X8X) provide any diversification benefits to the Islamic investors of Indonesia. We study the co-movements between return and volatility of cryptocurrencies and Indonesian Islamic equity indices during the pre-COVID-19 and COVID-19 periods. We employ Multivariate Generalized Autoregressive Conditional Heteroscedastic-Dynamic Conditional Correlation (M-GARCH-DCC) and Continuous Wavelet Transforms (CWT) for this study. We find that the COVID-19 crisis enhanced the spillover effect among the Islamic gold-backed cryptocurrencies and Islamic equities. We also provide evidence that Indonesian investors may invest in cryptocurrencies to minimize the equity sector risks during the pandemic. Our results bear significant implications for portfolio diversification strategies for Indonesian investors.
... Another, slightly different approach focuses on the classic hedging portfolio concept, in which the variance of the portfolio is minimized. In this way, the optimal asset weights in the portfolio are obtained and one is able to assess the effectiveness of the hedge (Yousaf and Yarovaya, 2022;Akhtaruzzaman et al., 2021). ...
... Various scholars compared the properties of Bitcoin with the properties of gold (Dyhrberg, 2016;Kang et al., 2019;Jin et al., 2019), usually concluding that the assets differ, especially when it comes to volatility (Smales, 2019). Properties of cryptocurrencies as safe-havens or hedges were examined most often against stocks (Bouri et al., 2020b;Meshcheryakov et al., 2020;Bȩ dowska-Sójka and Kliber, 2021;Yousaf and Yarovaya, 2022), and less frequently against cryptocurrencies (Urquhart and Zhang, 2019) or commodities. ...
Article
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The article aims to verify whether cryptocurrencies can hedge extreme price movements in Brent crude oil. The COVID-19 pandemic revealed that oil prices are heavily influenced by economic uncertainty and the mobility factor. We analyse Brent crude oil prices from February 10, 2020, to February 10, 2022. We consider Bitcoin, BNB, Ether, Tether, and USD Coin, the top five cryptocurrencies by market capitalization, as possible hedges. We explore their potential to protect oil investments using two approaches. The first focuses on price movement, and the second one on minimizing portfolio volatility. We use three modeling techniques: asymmetric causality in prices, a threshold vector-autoregressive model for returns, and dynamic conditional correlation analysis. We show that while stablecoins provide the best protection against downward movements in oil prices, they do not reduce investment volatility.
... Another, slightly different approach, concentrates on the classical concept of hedging portfolio, in which the portfolio variance is minimised. Thus, one obtains optimal weights of the assets in the portfolio and is able to assess the effectiveness of the hedge (Yousaf and Yarovaya, 2022;Akhtaruzzaman et al., 2021). ...
... Various scholars compared the properties of Bitcoin with the properties of gold (Dyhrberg, 2016;Kang et al., 2019;Jin et al., 2019), usually concluding that the assets differ, especially when it comes to volatility (Smales, 2019). Properties of cryptocurrencies as safe-havens or hedges were examined most often against stocks (Bouri et al., 2020b;Meshcheryakov et al., 2020;Bedowska-Sójka and Kliber, 2021;Yousaf and Yarovaya, 2022), and less frequently against cryptocurrencies (Urquhart and Zhang, 2019) or commodities. ...
... [70] analyzed the interconnectedness of crude oil and agricultural commodity assets, revealing that the connectedness is heterogeneous over time and driven by economic events reaching peaks during the GFC, European governmental debt crisis, and the recent COVID-19 pandemic. Yousaf and Yarovaya (2022) [71] and Samitas et al. (2022) [42] also confirmed that the volatility connectedness increased during the initial phase of the COVID-19 pandemic. ...
Article
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The paper aims to analyze the contagion effect coming from the developed stock markets of the US and Germany to the emerging CEE stock markets of Romania, Czech Republic, Hungary, and Poland using daily data for the period April 2005–April 2021. The paper also captures the level of integration of these emerging stock markets by analyzing the volatility spillover phenomenon. The quantification of the contagion effect coming from the developed to the emerging stock markets consisted of an empirical analysis based on the DCC-GARCH (Dynamic Conditional Correlation) model. Through this multivariate model, the time-varying conditional correlations were analyzed, both in periods of normal economic development and in times of economic instability, when there was a significant increase in the correlation coefficients between developed and emerging stock market indices. Furthermore, the level of connectedness between these markets has been analyzed using the volatility spillover index developed by Diebold and Yilmaz. The empirical results surprised the high level of integration of the analyzed stock markets in Central and Eastern Europe, with the intensity of volatility transmission between these markets increasing significantly during times of crisis. All stock market indices analyzed show periods during which they transmit net volatility and periods during which they receive net volatility, indicating a bidirectional volatility spillover phenomenon. Mostly, the BET, PX, and WIG indices are net transmitters of volatilities, whereas the BUX index is net recipient, except during the COVID-19 crisis, when it transmitted net volatility to the other three indices. Finally, using a Markov switching-regime VAR approach with two regimes, we explored the contagion effect between emerging CEE and developed stock markets during the COVID-19 pandemic. The empirical results proved a shift around the outbreak of the health crisis, after which the high volatility regime dominates the CEE markets. The contagion effects from developed stock markets to emerging CEE markets significantly increased during the first stage of the health crisis.
... Hedge ratio, optimal portfolio weights, and hedging effectiveness Furthermore, the hedge ratio (HR), optimal portfolio weights, and hedging effectiveness (HE) are used to offer a superior hedging strategy and portfolio implications to investors and portfolio managers with a better (Antonakakis et al., 2019). Some contemporary research (e.g., Yousaf & Yarovaya 2021;Hasan et al., 2022a) also utilizes these calculations in their studies to do the same. However, we estimate the HR, introduced by Kroner and Sultan (1993), based on the conditional variance and covariances of the DCC-GARCH t-Copula. ...
Article
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We explore the connectedness and portfolio implications between Islamic and conventional bonds of global and GCC regions. We also compare which bonds are performing better during our sample period. Unlike previous studies, we focus on Islamic bond markets compared to their conventional counterparts and highlight the GCC bonds (Islamic and conventional) in respect of global bonds. We apply DCC-GJR-GARCH (1,1) method, Sharp ratio and portfolio implications strategy over the period from 01 September 2013 to 23 February 2022. Our time-varying results suggest that the relationship among all the variables varies over time, but most of them are positive, suggesting that there is a less diversification opportunity between Islamic and conventional bonds. Hedging and diversification benefits are found only in the limited period among these variables, especially between GCC bond and global bond, and global Sukuk and GCC Sukuk. The findings of risk-adjusted returns reveal that Islamic bonds outperform compared to conventional counterparts. Moreover, mixed results are found in the case of hedging cost, and majority of fund, based on the optimal weights, should be invested in Islamic bonds. Our study endows investors and regulators in the global, and GCC markets with new insights on how to shield their investments and the financial system from financial crisis through a hedging strategy with Islamic finance.
... Amid this pandemic, many researchers explored the impact of COVID-19 (new cases, new deaths, negative sentiments) on cryptocurrencies, and they examined the effect of COVID-19 on cryptocurrencies in terms of performance (e.g., Caferra & Vidal-Tomás, 2021;Corbet et al., 2021;Iqbal et al., 2021;Yousaf & Yarovaya, 2022), efficiency (e.g., Kakinaka & Umeno, 2022;Naeem et al., 2021), and safe haven property (e.g., Corbet et al., 2020;Ji et al., 2020;Kumar et al., 2022;Mariana et al., 2021). ...
Article
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This study attempts to find the impact of the COVID-19 government interventions on the cryptocurrency market. Using the daily data over the period 2020 M01 to 2022 M1, this study applied the Markov-Regime-switching and MGARCH-DCC approaches for eight cryptocurrencies. Overall, Markov-Regime-switching models reveal that there is an adverse effect of government interventions on cryptocurrencies. However, MGARCH-DCC models suggest that the best possible diversification opportunity exists between Dogecoin and Oil. For robustness, this study applies the MF-DFA and found a consistent result. The findings of this study would help investors and policymakers to formulate optimal investment decision-making.
... IMOEX (-8.28%) and NSE 30 (-25%). During this market crash many studies showed that crypto-assets were useful as safe-havens or diversifiers (Kumar, 2020;Mariana et al., 2021;Goodell and Goutte, 2021;Yousaf and Yarovaya, 2022) because their returns were negatively correlated (or comoved negatively) with the traditional indices returns. A growing literature on the relationship between COVID-19 and crypto-assets (among others, Conlon et al., 2020;Goodell and Goutte, 2021a,b) has shown a positive correlation(and co-movement) between COVID-19 -related deaths and Bitcoin returns. ...
Thesis
Blockchain is a permanent, tamper-proof, distributed and historicized accounting register that makes it possible to establish trust between agents, without the intervention of a third party. By its structure, the Blockchain is a disruptive tool intended to “increase the transparency and efficiency of financial markets” (BRI, 2017). Thus this thesis proposes to analyze whether the Blockchain keeps itspromises through the analysis of some of its applications. The first application of Blockchain is Bitcoin. This asset has contributed enormously to the notoriety of Blockchain, on the one hand because of its strong price variations and on the other hand its usefulness in a financial portfolio. Since the increase of the transactions on Bitcoin network and by extension its price in 2012, determining its fundamentals has become a crucial question. The first chapter therefore analyzes the various determinants of Bitcoin price set out in the existing literature (the number of searches on Google, the difficulty of mining Bitcoin, the prices of gold and oil, the number of Bitcoins in circulation, etc. ) to which are associated the volumes of three crypto-assets which have the particularity of being largely (or totally) owned by their inventors: Tether, Ethereum and Ripple. Another question raised by the advent of crypto-assets is their usefulness in a financial portfolio. In the second chapter, we analyze the properties of hedging and diversification assets of crypto-assets for some African stock market indices. We compare crypto-assets to other assets traditionally used as safe-havens (gold, US Treasury bonds and commodities). Finally in the third chapter we test the safe haven qualities of crypto-assets during Covid-19 crisis through the analysis of European and African stock markets and then the establishment of vaccination campaigns.
... Drake (2022) concluded that gold is neither a hedge nor a safe harbor in times of economic stress. According to Yousaf and Yarovaya (2022), gold offers protection for investors and portfolio managers against losses in a few of the Asian stock markets during the COVID-19 outbreak. Many other literature recently explores the safe haven property by studying the correlation between gold and stock market and concludes with mixed results (Naeem et al., 2022;Tronzano, 2022;Wen et al., 2022). ...
Article
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Gold is a traditional favorite investment avenue for investors all over the globe, particularly during the crisis period. Irrespective of the nature of the crisis, investors are allocating their funds to different gold�backed assets. This paper uses various globally traded gold-backed assets to identify its role and market linkages during the Covid 19 pandemic. Daily prices of assets from March 2020 to January 2022 were employed. DCC GARCH model is used to ascertain time-varying correlations and quantile regression was employed to examine the relationship between assets in different quantiles. Based on the analysis, safe haven property of all the assets is revealed and it is associated with the severity of the stock market crash as specified by the quantiles. Moreover, double exposure of gold mining stock results in different flights to quality. Co-movement of gold bullion, gold futures, and gold volatility index is visible during this crisis. Gold Exchange Traded Funds and gold-backed cryptocurrency offer diversification by decoupling with gold bullion in the portfolio. The paper highlights the importance of the choice of gold�backed assets along with gold bullion in the investment portfolio based on its role and market linkages
... However, the sectoral spillover effects during the Covid-19 pandemic appear to be ignored in the existing literature. Previous studies have concerned the sectoral volatility spillover within specific financial markets other than Vietnam during the pandemic period, such as in China (Shahzad et al., 2021;Su & Liu, 2021;Umar et al., 2021), the US (Laborda & Olmo, 2021;Yousaf et al., 2020a), Europe (Aslam et al., 2021;Mensi et al., 2022), Islamic markets (Yousaf & Yarovaya, 2022a), and the G7 countries (Zhang et al., 2021). ...
Article
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While market volatility and volatility connectedness across different financial markets have been examined, the spillover effects across sectors have been under-examined. As such, this study aims to examine market volatility and the volatility patterns for 24 Vietnamese sectors. Our study uses the ARMA-GARCH estimation technique over the 2012–2021 period. The spillover effects between these sectors are then investigated using the vector autoregression (VAR) technique. Three key findings are as follows. First, the market volatility of Development Investment, Education, and Securities is most affected by the market volatility from the previous periods, whereas Construction is least affected. Second, the Vietnamese stock market exhibits a substantial inter-sector connectedness above 60 per cent from 2012 to 2021. However, the sectoral spillover effects increase to around 90 per cent during the Covid-19 pandemic. We found that Aquaculture, Building Materials, Food, and Plastic are the four primary risk transmitters at the sectoral level. Third, market volatility for Energy, Plastic, and Steel is unaffected by the pandemic. Meanwhile, Securities, Fertilizer, and Transportation exhibited a significant increase in market volatility during Covid-19. Based on these empirical results, policy implications have emerged for the Vietnamese government to support affected industries to recover and develop.
... We further estimate the hedge ratio (HR), optimal portfolio weights, and hedging effectiveness (HE) to provide better hedging strategy and portfolio implications to the investors and portfolio managers (Umar, 2017;Antonakakis et al., 2019;Yousaf and Yarovaya, 2021). However, we estimate the HR, proposed by Kroner and Sultan (1993), based on the conditional variance and covariances of the DCC-GARCH t-Copula. ...
Article
The COVID-19 pandemic has posed a massive disruption to the finance sector. Islamic financial markets are no exception. We explore the resilience of Islamic financial markets to the COVID-19 pandemic vis-à-vis conventional markets. A comparative analysis of the impact of the first and second waves of COVID-19 is also conducted. We use five Dow Jones Islamic stock indices and two bond indices and their conventional counterparts as proxies of Islamic and conventional financial markets. Using wavelet, wavelet-based Granger causality, hedge ratio, optimal weights, and hedging effectiveness methods from January 1, 2019, to February 26, 2021, our empirical estimates indicate that both Islamic and conventional stock indices are almost similarly affected by the extreme market turbulence triggered by COVID-19. Hence, Islamic stock markets fail to provide diversification benefits. We also unveil no significant differences between the first and second waves of COVID-19 in the case of dependency. Conversely, Islamic bonds exhibit low dependence on their conventional counterparts, indicating their diversification benefits. We further demonstrate that Islamic and conventional bond pairs could be utilized as a strong portfolio mix because the least hedging cost and highest hedging effectiveness are observed in those portfolios, especially during COVID-19. Overall, our results suggest that global Sukuk offers more resilience in times of extreme market turmoil than other instruments considered in this study. Our findings present global investors and regulators with new insights on diversification and hedging strategy with Islamic finance during a worldwide, severe economic crisis. We present some policy recommendations in creating a more sustainable financial system post-COVID-19.
... However, an abnormal spike during the first half of 2021 denotes price anomalies of cryptocurrencies (Karim et al., 2022b) which spiked the return of BTC. Considering EAIs, all emerging Islamic markets indicated spikes in their returns during European Debt Crisis spanning 2010-2012 (Iqbal et al., 2021), Shale oil crisis (2014)(2015)(2016), where variations in the oil prices intensified the return spillovers (Balli et al., 2019), Chinese stock market crash in a single day during 2016 (Womack, 2017), Brexit referendum during 2016 (Mensi et al., 2021), US interest rate hike for the period 2017-2018 (Elsayed et al., 2020), COVID-19 pandemic Yousaf and Yarovaya, 2022), and threats to the new variant of coronavirusomicron during the end of 2021. Whether economic, financial, or pandemic-oriented, these incidents reflect the exposure of markets to extreme periods demonstrating tail characteristics among the markets. ...
Article
Continuous financing of illicit activities (drug and human trafficking, child abuse, cybercrimes) through Bitcoin nurtures the ethical risk of investors. Building on this argument, the current study investigates the extreme tail dependence between Bitcoin and Emerging Asian Islamic (EAI) markets. We report multiple tail-dependent copulas differing across turmoil periods for the whole sample period. Under the ethical-risk hypothesis and modern portfolio theory, our findings demonstrated stronger safe-haven properties of EAIs for Bitcoin to mitigate ethical risk, and higher diversification benefits are documented for both equally adjusted and optimal portfolios. We formulated useful implications for policymakers, governments, regulation authorities, ethical investors, and portfolio managers for policymaking and strategizing their investment portfolios.
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This study investigated the safe-haven role of two gold-backed Islamic cryptocurrencies, i.e., OneGram Coin (OGC) and X8X Token (X8X), for 15 Islamic equity indices at the global, regional, and country levels. For this purpose, we used four-moment modified value at risk, dynamic conditional correlation-based hedge and safe-haven hypotheses, directional spillover in quantiles, and daily data from February 17, 2019, to May 5, 2021, including the post-pandemic period from February 1, 2020, to May 5, 2021. Based on the findings, OGC was a strong safe-haven for several Islamic equity markets, especially during the COVID-19 pandemic. We also constructed two novel polarity and subjectivity measures using natural language processing, which indicated that when negativity in the market (e.g., polarity, subjectivity, and economic/market uncertainty) is higher on social media platforms, OGC produces positive returns in order to reduce the losses in equity indices. These results hold after controlling for trading volume.
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Using the nearest neighbor truncation (NNT) approach, this study investigates the realized volatility transmission between the Malaysian Islamic market with various global sectoral Islamic stock markets by extending the heterogeneous autoregressive (HAR) with GARCH, asymmetric effects and jump-robust volatility estimator established in a multivariate setting. The multivariate HAR-GARCH model is capable to capture the persistence and time-varying volatility of realized volatility while NNT approach allows for an asymptotic limit theory in the presence of jumps. Using intraday data, the findings suggest the daily realized volatilities of the Islamic equities rely significantly on their own short-, mid- and long-term volatility components. Besides, there is an evidence of volatility spillover in majority of the pairwise but with low magnitude. The findings also confirm the vital role of conditional heteroscedasticity in the volatility series in explaining the measured volatility transmission of the Islamic stock indices. Hence, this study provides useful insight to understand the portfolio risk of Shariah-compliant equities in making better-informed portfolio allocation.
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Through the application of the VAR-AGARCH model to intra-day data for three cryptocurrencies (Bitcoin, Ethereum, and Litecoin), this study examines the return and volatility spillover between these cryptocurrencies during the pre-COVID-19 period and the COVID-19 period. We also estimate the optimal weights, hedge ratios, and hedging effectiveness during both sample periods. We find that the return spillovers vary across the two periods for the Bitcoin–Ethereum, Bitcoin–Litecoin, and Ethereum–Litecoin pairs. However, the volatility transmissions are found to be different during the two sample periods for the Bitcoin–Ethereum and Bitcoin–Litecoin pairs. The constant conditional correlations between all pairs of cryptocurrencies are observed to be higher during the COVID-19 period compared to the pre-COVID-19 period. Based on optimal weights, investors are advised to decrease their investments (a) in Bitcoin for the portfolios of Bitcoin/Ethereum and Bitcoin/Litecoin and (b) in Ethereum for the portfolios of Ethereum/Litecoin during the COVID-19 period. All hedge ratios are found to be higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. Last, the hedging effectiveness is higher during the COVID-19 period compared to the pre-COVID-19 period. Overall, these findings provide useful information to portfolio managers and policymakers regarding portfolio diversification, hedging, forecasting, and risk management.
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Controlling for the polarity and subjectivity of social media data based on the development of the COVID-19 outbreak, we analyse the relationships between the largest cryptocurrencies and such time-varying realisation as to the scale of the economic shock centralised within the rapidly-escalating pandemic. We find evidence of significant growth in both returns and volumes traded, indicating that large cryptocurrencies acted as a store of value during this period of exceptional financial market stress. Further, cryptocurrency returns are found to be significantly influenced by negative sentiment relating to COVID-19. While not only providing diversification benefits for investors, results suggest that these digital assets acted as a safe-haven similar to that of precious metals during historic crises.
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The COVID-19 pandemic provided the first widespread bear market conditions since the inception of cryptocurrencies. We test the widely mooted safe haven properties of Bitcoin, Ethereum and Tether from the perspective of international equity index investors. Bitcoin and Ethereum are not a safe haven for the majority of international equity markets examined, with their inclusion adding to portfolio downside risk. Only investors in the Chinese CSI 300 index realized modest downside risk benefits (contingent on very limited allocations to Bitcoin or Ethereum). As Tether successfully maintained its peg to the US dollar during the COVID-19 turmoil, it acted as a safe haven investment for all of the international indices examined. We caveat the latter findings with a warning that Tether's dollar peg has not always been maintained, with evidence of impaired downside risk hedging properties earlier in our sample.
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We apply wavelet methods to daily data of COVID-19 world deaths and daily Bitcoin prices from 31th December 2019 to 29th April 2020. We find, especially for the period post April 5, that levels of COVID-19 caused a rise in Bitcoin prices. We contribute to the fast-growing body of work on the financial impacts of COVID-19, as well as to ongoing consideration of whether Bitcoin is a safe haven investment. Our results should be of great interest to both scholars and policy makers, as well as investment professionals interested in the financial implications of both COVID-19 and cryptocurrencies.
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At the beginning of the 2020 global COVID-2019 pandemic, Chinese financial markets acted as the epicentre of both physical and financial contagion. Our results indicate that a number of characteristics expected during a ”flight to safety” were present during the period analysed. The volatility relationship between the main Chinese stock markets and Bitcoin evolved significantly during this period of enormous financial stress. We provide a number of observations as to why this situation occurred. Such dynamic correlations during periods of stress present further evidence to cautiously support the validity of the development of this new financial product within mainstream portfolio design through the diversification benefits provided.
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This research aims to evaluate the suitability of cryptocurrency as money from the Islamic perspective. Money, in the Islamic perspective, has specific characteristics and requirements, such as stability and is based on assets. Cryptocurrency may not fulfil this as it has queries as money from the Islamic perspective. The research method applied data of 23 cryptocurrency prices and related information. The result shows that cryptocurrency is hugely volatile and has limits to being called 'money,' as it is limited and used for speculation, which is prohibited in Islam. The research implies that Muslims would be reluctant to use cryptocurrency as money, as a currency of transaction. This reason raise an expectation that the cryptocurrency will not develop rapidly in Muslim countries.
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Being the health pandemic with the highest impact on the global financial market, the recent COVID-19 pandemic has led to significant risk transmissions across stock markets. Although an increasing number of studies have examined the effects of the pandemic on financial markets, we provide novel insights into the volatility connectedness between conventional and Islamic stock markets. First, the analysis is conducted at the sectoral level, considering nine sectors for each category. Second, a greater novelty is applied by determining if the actual COVID-19 occurrence or speculations or sentiments raised by it is responsible for the connectedness. Summarily, findings show that markets are strongly connected. In addition, the Technology and Utilities sectors of both stock market types, and the Oil and Gas conventional stocks are the net receivers of volatility shocks. On average, however, Islamic markets tend to be more immune to the pandemic than conventional markets. Finally, both causal factors considered significantly affect the connectedness measures, although the effect is heterogeneous and stronger for the speculative/sentiment indicators. These findings provide appropriate policy clues for both investors and policy makers.
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Against the backdrop of the exponentially growing trend in green finance investments and the calls for green recovery in the post-COVID world, this study presents the time-frequency connectedness between green and conventional financial markets by using the spillover models of Diebold and Yilmaz (2012) and Baruník and Křehlík (2018). Covering a sample period from January 01, 2008, to July 31, 2020, we aim to explore the dynamics of connectedness between conventional and green investments in fixed income, equity, and energy markets. Additionally, we determine the role of market-wide uncertainty in altering the connectedness structure by performing a subsample analysis for the ongoing COVID-19 pandemic crisis period. Our results show that competing energy investments are not connected, and there is only one-way spillovers from the conventional bonds in the fixed-income investments. Additionally, we observe a low (high) intergroup connectedness for conventional (green) investments. Moreover, the frequency-based analysis shows that connectedness between these competing markets is more pronounced during the short-run. The subsample analysis for the pandemic crisis period shows similar results except for the disconnection between bond markets in the short-run frequency. Our time-varying analysis shows peaks and troughs in the connectedness between climate-friendly and conventional investments that suggest different global events such as the Eurozone Debt Crisis and Shale Oil Revolution drives the association between alternate investments. Similarly, we observe an enhanced connectedness during the recent COVID-19 period, suggesting that financial stability would be a significant factor in determining the smooth transition to green investments.
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This paper examines the static and dynamic connectedness (returns and volatility) between the components of the sovereign yield curve (level, slope, curvature) and sectorial equity indices in China. We document a strong connection between these factors, particularly during three periods: the August 2011 stock market crash, the 2015 Chinese stock market crash and the 2018 US-China trade war. Our results show that the level component of the yield curve is a net transmitter of return spillovers, whereas the curvature component of the yield curve is a net transmitter of volatility spillovers. These findings may be useful for portfolio managers and policymakers making decisions regarding portfolio allocations, risk management, and monetary policy.
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The purpose of this study is to investigate the return connectedness in the median, left, and right tail, using the novel methodology of quantile-based connectedness proposed by Ando et al. (2018 Ando, T., M. Greenwood-Nimmo, and Y. Shin. 2018. Quantile Connectedness: Modelling Tail Behaviour in the Topology of Financial Networks. Available at SSRN 3164772. https://doi.org/10.2139/ssrn.3164772 [Google Scholar]). We use daily data covering the period from 1 January 2013 to 27 October 2020, which includes different financial crises occurring in GCC, Turkey, Malaysia, and Indonesia. Furthermore, analysing the dynamic connectedness, the Sukuk market was significantly influenced by the COVID-19 pandemic. Our findings reveal that the spillover structures in both upper and lower tails differ from those observed in the middle quantile. Finally, we find that Bahrain, Malaysia, Oman, and Qatar transmitted more spillovers than they admitted during the COVID-19 outbreak. These findings offer vital implications for regulators and policymakers, investors, traders, and portfolio managers regarding whether diversification across Sukuk indices is achievable during turbulent periods like COVID-19.
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We examine the risk transmission from the COVID-19 to metal (precious and industrial) and energy markets using the BEKK-MGARCH model. The findings reveal the significant and negative volatility transmission from the COVID-19 to gold, palladium, and brent oil markets, suggesting the safe-haven properties of these markets. The COVID-19 risk is not transmitted to the industrial metal market, whereas the rise in COVID-19 volatility leads to an increase in WTI oil market volatility. These results provide useful insights to investors and policymakers regarding risk management, asset pricing, and financial market stability during the COVID-19 pandemic.
Purpose The purpose of this study is to investigate the volatility and forecast accuracy of the Islamic stock market for the period 1999–2017. This period is characterized by the occurrence of several economic and political events such as the September 11, 2001, terrorist attack and the 2007–2008 global financial crisis. Design/methodology/approach This study constructs a new hybrid generalized autoregressive conditional heteroskedasticity (GARCH)-type model based on an artificial neural network (ANN). This model is applied to the daily Dow Jones Islamic Market World Index during the period June 1999–January 2017. Findings The in-sample results show that the volatility of the Islamic stock market can be better described by the fractionally integrated asymmetric power ARCH (FIAPARCH) approach that takes into account asymmetry and long memory features. Considering the out-of-sample analysis, this paper has applied a hybrid forecasting model, which combines the FIAPARCH approach and the ANN. Empirical results reveal that the proposed hybrid model (FIAPARCH-ANN) outperforms all other single models such as GARCH, fractional integrated GARCH and FIAPARCH in terms of all performance criteria used in the study. Practical implications The results have some implications for Islamic investors, portfolio managers and policymakers. These implications are related to the optimal portfolio diversification decision, the hedging strategy choice and the risk management analysis. Originality/value The paper develops a new framework that combines an ANN and FIAPARCH model that introduces two important features of time series, namely, asymmetry and long memory.
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Using a bivariate dynamic conditional correlation (DCC) generalized autoregressive conditional heteroskedasticity (GARCH) model, this study compares the safe-haven properties of various assets against the major Gulf Cooperation Council (GCC) stock indexes during two periods of financial turmoil, the COVID-19 pandemic and the 2008 Global Financial Crisis (GFC). Sovereign bonds offered the highest hedging benefits under both crises. The traditional safe assets, gold and silver, which were reasonably productive under the GFC, have been less so during the pandemic. The Japanese yen emerged as a very safe choice for investors holding GCC stock indexes. Both sector indexes and stock indexes failed to safeguard investors most of the time during each crisis.
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Inter-sectoral volatility linkages in the Chinese stock market are understudied, especially asymmetries in realized volatility connectedness, accounting for the catastrophic event associated with the COVID-19 outbreak. In this paper, we examine the asymmetric volatility spillover among Chinese stock market sectors during the COVID-19 pandemic using 1-min data from January 2, 2019 to September 30, 2020. In doing so, we build networks of generalized forecast error variances by decomposition of a vector autoregressive model, controlling for overall market movements. Our results show evidence of the asymmetric impact of good and bad volatilities, which are found to be time-varying and substantially intense during the COVID-19 period. Notably, bad volatility spillover shocks dominate good volatility spillover shocks. The findings are useful for Chinese investors and portfolio managers constructing risk hedging portfolios across sectors and for Chinese policymakers monitoring and crafting stimulating policies for the stock market at the sectoral level.
Article
We undertake a comparative examination of Islamic equity markets and their conventional counterparts during the COVID‐19 pandemic via maximum drawdown‐based risk measures. The two‐digit drawdown throughout the underlying sectors signifies the indiscriminate impact of the pandemic. It appears that most of the Islamic sectors experience relatively lower drawdown as well as faster recovery than their non‐Islamic counterparts. During the period, Islamic markets outperformed their counterparts. Islamic markets also hold healthier Calmar ratios while the emerging markets retain relatively higher metrics.
This paper analyses herding in cryptocurrency markets in the time of the COVID-19 pandemic. We employ a combination of quantitative methods to hourly prices of the four most traded cryptocurrency markets - USD, EUR, JPY and KRW - for the period from 1st January 2019 to 13th March 2020. While there are several strong theoretical reasons to observe the “black swan” effect on cryptocurrency herding, our results suggest that COVID-19 does not amplify herding in cryptocurrency markets. In all markets studied, herding remains contingent on up or down markets days, but does not get stronger during the COVID-19. These results are important for cryptocurrency investors and regulators to enhance their understanding of cryptocurrency markets and the financial effects of the COVID-19 pandemic.
Article
We evaluate the connection between corporate characteristics and the reaction of stock returns to COVID-19 cases using data on more than 6,700 firms across 61 economies. The pandemic-induced drop in stock returns was milder among firms with stronger pre-2020 finances (more cash and undrawn credit, less total and short-term debt, and larger profits), less exposure to COVID-19 through global supply chains and customer locations, more corporate social responsibility activities, and less entrenched executives. Furthermore, the stock returns of firms controlled by families (especially through direct holdings and with non-family managers), large corporations, and governments performed better, and those with greater ownership by hedge funds and other asset management companies performed worse. Stock markets positively price small amounts of managerial ownership but negatively price high levels of managerial ownership during the pandemic.
Article
We analyse the impact of the COVID-19 pandemic on the spillovers between conventional and Islamic stock and bond markets. We further analyse comparatively whether gold, oil, Bitcoin prices, and VIX and EPU indexes affect the relationships between these markets during the COVID-19 pandemic outbreak. The results show that the Islamic bonds (Sukuk) demonstrate safe haven properties during this pandemic crisis, while the spillovers between conventional and Islamic stock markets become stronger during the pandemic outbreak. COVID-19, Oil and gold are strong predictors of the conventional-Islamic markets spillovers, while Bitcoin is not a significant determinant of these relationships.
Article
This study focuses on the dynamic connectedness between returns and volatilities of commodities and Islamic developed and emerging market indices using daily date from August 30, 2007 to June 30, 2020. We employed the Diebold and Yilmaz (2014) connectedness index based on the forecast error variance decomposition from vector autoregression (VAR) framework. First, we used a static analysis to calculate the total return and volatility connectedness. Second, we opted for a dynamic analysis to evaluate both the net directional and net pairwise directional connectedness for commodities and Islamic stock markets in the total period. Finally, we perform a sub-sample analysis, with networks, nodes and edges after the outbreak of COVID-19 to highlight how this earlier outbreak has changed the network structure between commodities and Islamic indices. Generally, results show that commodities indices exhibits the highest source of shocks to Islamic stock market whatever the period. Additionally, the rolling analysis of return and volatility spillover shows that the degree of connectedness varies over time, as there is a strong spillover transmission especially after the COVID-19 pandemic. Thus, Islamic stock market appears as a net recipient rather than a transmitter of spillovers.
Article
In this paper, we use a bivariate Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity model within the world's dominant financial asset classes— represented by sovereign bonds, commodities, and major exchange rates—to characterize the correlation within the major asset classes among the Global Financial Crisis (GFC) and COVID-19’s 100 days. Our results specify a noteworthy degradation of co-relationship within the asset classes dominant in COVID-19 compared to the GFC, especially when the VIX was at its peak, indicating massive fear among investors. We also find that gold, U.S., UK, and German sovereign bonds are a safe option for investors.
Article
Purpose This study examines co-movements between global Islamic index and heterogeneous rated/maturity sukuk. It tests the impact of financial uncertainty on these movements. Design/methodology/approach Firstly, we conduct a bivariate wavelet analysis to assess the co-movements between stocks and sukuk indexes. Secondly, we use General dynamic factor model and stochastic volatility to construct financial uncertainty index from Islamic stock indexes. Finally, we run regression analysis to determine the impact of uncertainty on the obtained correlations. Findings Our results suggest the absence of flight to quality phenomenon since correlations are positive especially at a short investment horizon. There is evidence of contagion phenomena across assets. Financial uncertainty may be considered as a determinant of stock-sukuk co-movements. Our results show that a rise in financial uncertainty induces correlation to move in the opposite direction in the short term, (exception for correlation with AA-Rated sukuk). However, the sign of stock market uncertainty becomes positive in the long term, which leads sukuk and stocks to move in the same direction (exception for 1–3 Year and AA Rated sukuk). Practical implications Investors may combine sukuk with 1–3 Year maturity and AA Rated when considering long holding periods. Further, all sukuk categories provide diversification benefit in time high financial uncertainty expectation for AA Rated sukuk when considering short holding periods. Originality/value To the best of our best knowledge, our study is the first investigation of the impact of financial uncertainty on Stock-sukuk co-movements and provides recommendation considering sukuk with different characteristics.
Article
This study explores the return and volatility spillovers between the S&P 500 and cryptocurrencies (Litecoin, Bitcoin, and Ethereum) during the pre-COVID-19 period and the COVID-19 period using the VAR- BEKK-AGARCH model on hourly data. Furthermore, this study also quantifies the optimal portfolio weights and hedge ratios during both sample periods. The findings of study show that the return and volatility spillovers between US stock and cryptocurrency markets are not significant during the pre-COVID-19. However, the study finds the unidirectional return transmission from the S&P 500 to all cryptocurrencies during the COVID-19. During the COVID-19, the volatility spillover is unidirectional from the S&P 500 to Litecoin, whereas volatility transmissions are not significant for the pairs of S&P 500- Bitcoin and S&P 500-Ethereum. Based on optimal weights, the portfolio managers are recommended to slightly decrease their investments in the S&P 500 for the portfolios of S&P 500/BTC, S&P 500/ETH, and S&P 500/LTC during the COVID-19 period. Finally, during the COVID-19 period, all hedge ratios were found to be higher, implying higher hedging costs during COVID-19 period compared to pre-COVID-19 period. Our research offers valuable insights to the fund managers, investors, and policymakers regarding diversification opportunities, hedging, optimal asset allocation, and risk management.
Article
No previous infectious disease outbreak, including the Spanish Flu, has affected the stock market as forcefully as the COVID-19 pandemic. In fact, previous pandemics left only mild traces on the U.S. stock market. We use text-based methods to develop these points with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also evaluate potential explanations for the unprecedented stock market reaction to the COVID-19 pandemic. The evidence we amass suggests that government restrictions on commercial activity and voluntary social distancing, operating with powerful effects in a service-oriented economy, are the main reasons the U.S. stock market reacted so much more forcefully to COVID-19 than to previous pandemics in 1918–1919, 1957–1958, and 1968.
Article
We investigate if trust affects global stock market volatility during the COVID-19 pandemic. Using a sample of 47 national stock markets, we find the stock markets’ volatility to be significantly lower in high-trust countries (in reaction to COVID-19 case announcements). Both trust in fellow citizens as well as in the countries’ governments are of significant importance.
Article
Utilizing the WHO COVID-19 pandemic statement, we test Bitcoin and Ethereum as safe-havens for stocks. We find that the two largest cryptocurrencies are suitable as short-term safe-havens. The DCC and cDCC results show that their daily returns tend to correlate with S&P500 return negatively during the pandemic. The regression results also robustly support the safe-haven features and uncover that Ethereum is possibly a better safe-haven than Bitcoin. However, we note that both coins exhibit high volatilities. Before (during) the pandemic daily volatilities of Bitcoin, Ethereum, gold, and the S&P500 are 3.44% (9.11%), 4.34% (10.96%), 0.89% (2.19%), and 1.27% (6.07%), respectively.
Article
Abstract In the wake of recent pandemic of COVID-19, we explore its unprecedented impact on the cryptocurrencies' market. Specifically, we check how the changing intensity of the COVID-19 represented by the daily addition in new infections worldwide affects the daily returns of the top 10 cryptocurrencies according to the market capitalization. The results from Quantile-on-Quantile Regression (QQR) approach reveal that the changing intensity levels of the COVID-19 affect the Bearish and the Bullish market scenarios of cryptocurrencies differently (asymmetric impact). Additionally, there are differences between these currencies in their responses to the changing levels of this pandemic's intensity. Most of the currencies absorbed the small shocks of COVID-19 by registering positive gains but failed to resist against the huge changes except Bitcoin, ADA, CRO, and up to some extent Ethereum also. Our results reveal new and asymmetric dynamics of this emerging asset class against an extremely stressful and unpredictable event (COVID-19). Moreover, these results are robust to the use of alternative proxy (COVID-19 deaths) for pandemic intensity. Our findings help to improve investors and policymakers' understanding of the cryptocurrencies' market dynamics, especially in the times of extremely stressful and unseen events. Keywords: COVID-19; Bitcoin; Top 10 Cryptocurrencies; World; Quantile-on-Quantile regression.
Article
Market reactions to the 2019 novel coronavirus disease (COVID-19) provide new insights into how real shocks and financial policies drive firm value. Initially, internationally oriented firms, especially those more exposed to trade with China, underperformed. As the virus spread to Europe and the United States, corporate debt and cash holdings emerged as important value drivers, relevant even after the Fed intervened in the bond market. The content and tone of conference calls mirror this development over time. Overall, the results illustrate how anticipated real effects from the health crisis, a rare disaster, were amplified through financial channels. (JEL G01, G12, G14, G32, F14) Received: May 27, 2020; editorial decision June 16, 2020 by Editor Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Article
The outbreak of COVID-19 pandemic came as a rare, unprecedented event and governments around the globe scrambled with emergency actions including social distancing measures, public awareness programs, testing and quarantining policies, and income support packages. In this paper, we examine the expected economic impact of government actions by analyzing the effect of such actions on stock market returns. Using daily data from January 22 to April 17, 2020 from 77 countries, we find announcements of government social distancing measures have a direct negative effect on stock market returns due to their adverse effect on economic activity, while an indirect positive effect through the reduction in COVID-19 confirmed cases. Government announcements regarding public awareness programs, testing and quarantining policies, and income support packages largely result in positive market returns. Our findings have important policy implications, primarily by showing that government social distancing measures have both positive and negative economic impact.
Article
This study (i) compares the performance of 22 Islamic and conventional Dow Jones stock market indices during the recent pre-crisis and post-crisis periods, namely, the global financial crisis (GFC) and the European sovereign debt crisis (ESDC); (ii) analyzes the time-frequency co-movements between conventional and Islamic stock sectors; and (iii) evaluates portfolio risk management. We apply different performance measures, namely, the Sharpe, Roy, Treynor, Omega, and Alpha Jensen. These are based on the capital asset pricing model-exponential generalized autoregressive conditional heteroscedasticity (CAPM-EGARCH) model, and the cross wavelet transform approach, the wavelet approach, and the conditional value at risk (CVaR). Results using the Alpha Jensen performance measure show that Islamic equity returns dominate conventional equity returns during the full sample period. However, the pre-crisis periods are dominated by higher conventional equity returns, irrespective of the return measures employed. During the GFC, the ESDC, and the post-crisis periods, Islamic equity returns dominate their conventional counterparts. Moreover, the co-movements of sectors vary over time and across frequencies and depend on major events. We find that portfolios consisting of Islamic and conventional equity markets within the industrial and utilities sectors offer maximum risk reductions in terms of portfolio value at risk (VaR). Whereas, portfolios consisting of Islamic and conventional stock markets of aggregate equities, basic materials, consumer services, and technologies highlight traces of low-diversification benefits across the entire sampling period. The consumer goods, energy, financial, healthcare, and telecommunications sectors highlight the least diversification benefits in terms of differences in portfolio VaR. Evidence of systemic risk is reported.
Article
This paper examines the rapid spread of Coronavirus (COVID-19) and its short-term impact on the Shariah-Compliant UK Dow Jones market index to capture the dynamic behavior of stock returns at economy and industry levels. Using daily data over the period January 20 to May 20 and ten UK industrial sector groupings, the findings suggest a strong and statistically significant relationship between the COVID-19 pandemic and the performance of the conventional stock market index. The findings also suggest that the disease interacts negatively but insignificantly with the Dow Jones faith-based ethical (Islamic) index compared to its UK counterpart. In addition, through an analysis of sector groupings, the paper shows that the stock returns of the information technology sector performed significantly better than the market, while stock returns of consumer discretionary sector, which includes transportation , beverages, tourism and leisure, consumer services performed significantly worse than the market during the COVID-19 outbreak. Other sector groupings fail to yield significantly plausible parameter values.
Article
During the ongoing COVID-19 pandemic in the US, there has been considerable media attention regarding several US legislators who traded stocks in late January through February 2020. The concern is that these legislators traded in anticipation of COVID-19 having a major impact on the financial markets, while publicly suggesting otherwise. We consider whether these legislator trades were in a time window, and of a nature, that would be consistent with trading ahead of the market. Towards this end, we assess the reactions of US industries to sudden COVID-related news announcements, concomitantly with an analysis of levels of investor attention to COVID. Results suggest that, at an industry-level, for legislator trading to be “ahead of the market” it needed to have been done prior to February 26, and involving the 15 industries we identify as having abnormal returns, especially medical and pharmaceutical products (positive); restaurants, hotels, and motels (negative); as well as services and utilities. These criteria are met by many of the legislator trades. Our results help to both parameterize concerns about this case of legislator trading; as well as provide insight into the reactions and expectations of investors toward COVID-19.
Article
We assess the differential impact of geopolitical risk on Islamic and conventional gold backed cryptocurrencies using a multivariate Generalized Autoregressive ConditionalHeteroscedasticity(M-GARCH) modeling. We unveil that Islamic gold-backedcryptocurrencies behave differently from their conventional counterparts. Sharia compliant cryptocurrencies are positively correlated to the yellow metal, while the conventional ones are weakly and negatively associated to gold. We find that the geopolitical risk intensifies the dependency of GBC to gold returns and volatility. Our results are of great interest for policy makers, Islamic portfolio managers and digital currency traders when undertaken their investment and hedging strategies during periods of high uncertainty and worsen geopolitical circumstances.
Article
This paper examines the co-movements between Bitcoin (BTC) and the Dow Jones World Stock Market Index, regional Islamic stock markets, and Sukuk markets. We apply cross wavelet transform and wavelet coherence analysis with a wavelet-based measure of value at risk. The co-movement is stronger and in the same direction at lower frequencies, suggesting the benefits from diversification with BTC are relatively less for long-term investors compared to short-term investors. Co-movement in the opposite direction at high frequencies implies better benefits of hedging in the short run through diversification in BTC and Islamic equity markets. Robustness tests show that the correlations increase as we increase from an investment horizon of two days to one of 64 days. The frequency-domain causality test shows significant causality flow from BTC to the Islamic market of Asia-Pacific, Japan, and Sukuk markets in the short term. Additionally, BTC is found to lead Asia-Pacific Islamic stock markets in the long term. Finally, we note that the benefits of portfolio diversification with BTC and Islamic assets vary across time and frequencies.
Article
The rapid spread of coronavirus (COVID-19) has dramatically impacted financial markets all over the world. It has created an unprecedented level of risk, causing investors to suffer significant loses in a very short period of time. This paper aims to map the general patterns of country-specific risks and systemic risks in the global financial markets. It also analyses the potential consequence of policy interventions, such as the US’ decision to implement a zero-percent interest rate and unlimited quantitative easing (QE), and how these policies may introduce further uncertainties into global financial markets.
Article
This paper highlights the enormous economic and social impact of COVID-19 with respect to articles that have either prognosticated such a large-scale event, and its economic consequences, or have assessed the impacts of other epidemics and pandemics. A consideration of possible impacts of COVID-19 on financial markets and institutions, either directly or indirectly, is briefly outlined by drawing on a variety of literatures. A consideration of the characteristics of COVID-19, along with what research suggests have been the impacts of other past events that in some ways roughly parallel COVID-19, points toward avenues of future investigation.
Article
The emergence of new asset classes offers avenues to international investment community however understanding relationship between any two assets in a single portfolio is important. We investigate the risk dependence between daily Bitcoin and major Islamic equity markets spanning over from July 2010 to March 2018. We start by examining long memory properties of Bitcoin and sampled Islamic indices and report significant results. The residuals from fractionally integrated models are then used in bivariate time invariant and time varying copulas to investigate dependence structure. Among all Islamic indices, DJIUK, DJIJP and DJICA exhibit time varying dependence with Bitcoin. In addition, we apply VaR, CoVaR and ΔCoVaR as risk measure to examine spillover between Bitcoin and Islamic equity markets. VaR of Bitcoin exceeds from VaR of Islamic indices and CoVaR of both Islamic and Bitcoin exceeds their respective VaR, suggesting presence of risk spillover between each other. Our results also report asymmetry between downside and upside ΔCoVaR suggesting implications for investors with different risk preferences. Finally, the diversification benefits indicate that Islamic equity market serves as an effective hedge in a portfolio along with Bitcoin.
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A cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to secure financial transactions, control the creation of additional units and verify the transfer of assets. There is an ongoing debate about the legality and permissibility of cryptocurrency in Islamic finance. Cryptocurrencies have the potential to become the future currency and maybe even backed by the government in the long run, but in order to be accepted in the mainstream Islamic finance, it has to overcome negative sentiments surrounded by the excess volatility and use in fraudulent activity and well regulated by both banking law and Shariah law. This chapter will provide an insight into the issue of the usage and challenges of cryptocurrency from an Islamic finance perspective.
Article
The multi-fractal chaotic dynamics of Islamic and Green crypto-currency series are investigated for the first time in econophysics literature. Specifically, we decompose and analyse the temporal signals of prices, returns, volume and volatility of Islamic and Green cryptos vis-à-vis conventional ones in a comparative manner. We introduce a multi-step resolution approach based on detrended fluctuation analysis, Generalized Hurst and Lyapunov exponents as well as fractionally integrated conditional heteroskedasticity. Moreover, various tests are employed to investigate the statistical significance of any (dis)similarities of long memory patterns, multi-fractality measures and chaotic dynamics observed among Islamic, Green and conventional crypto-currency markets. Our findings suggest that while the returns of Islamic and green crypto-currencies exhibit anti-persistent dynamics, their price, volatility and volume series embed high persistence compared to the conventional crypto-currencies. Further statistical testing indicates that the distributions of the chaotic parameter estimates are significantly different versus common crypto-currencies, a fact that reveals heterogeneity in multi-fractality and long memory patterns. As the Islamic and Green cryptos exhibit a distinct and more profound chaotic behaviour compared to conventional ones, their short-term predictability could further induce financial agents.
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This chapter pursues the efforts of emphasizing the importance of national and supranational issuance of social cryptocurrencies for social projects for the benefit of the country. After setting up the definitions required for the study, the chapter connects the United Nations (UN) 2030 Sustainable Development Goals (SDGs) with the social finance objective needed at a national level. The chapter gives with the figures the potentiality of establishing a digital finance strategy in achieving the social objectives and in particular the SDGs. Besides, it concludes by giving the focal two specific potential constraints in issuing the cryptocurrency. The first is the regulator perspective where here the regulator will be regulating and issuing a new national “cryptocurrency” along with its own “physical” currency. The second point of view that concluded the chapter is the Shari’ah perspective where different conditions were identified to make sure of the compliance of the new issuance.
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Present-day Islamic banking stands on the ground rules set by the interest-based economy. Islamic wealth management is doing a continual progress from “less halal to more halal” but is often challenged by the well-established interest-based economy, thus slowing down its progression. Is there any alternative for Islamic banking to re-establish from the ground-up and win the financial world instead of making a compromise approach? Indeed, the bitcoin and its underlying blockchain technology proved that alternate methods are possible to challenge the financial institutions without getting consensus, compromises, or approval of anybody, but to stick to a well-defined preset rules and principles. Since the Islamic banking has its own unchangeable concepts and rules, finding opportunities using blockchain to improve Islamic banking and other halal activities is way more than a technology adoption due to the fact that the blockchain is deep rooted on truthfulness and transparency—the same core founding elements of Islamic banking. Using blockchain technology, it is interesting to see that Islamic banking can produce its global halal currency, enable Shari’ah principles using smart contracts for wealth management including zakat, inheritance, etc., and can disrupt the financial world by storm.