Testing the conventional and Islamic financial market contagion: evidence from wavelet analysis
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This study is a first attempt at testing the extent of contagion for conventional and Shari’ah-compliant stock indices. We examine the period surrounding the U.S. subprime crisis of 2007–9 and the Lehman Brothers collapse of 2008 to determine the relative extent of contagion. We find no clear evidence of contagion during the subprime crisis however, during the Lehman collapse most conventional indices showed contagion. Interestingly, the Shari’ah-compliant indices mostly do not show evidence of contagion. Collectively, our results have important implications for fund managers in terms of asset allocation risk and policymakers seeking an optimal policy response to crises.
Contagion , Conventional compliant stock markets , Shari’ah-compliant stock markets , Interdependence , Wavelet coherence , Wavelet correlation , Wavelet time-frequency decompositions
Saiti, B., Bacha, O. I., & Mohammed Masih, A. M. (2015). Testing the conventional and Islamic financial market contagion: evidence from wavelet analysis. Emerging Markets Finance and Trade, 51(8), pp. 1-18.