# A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification

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## Abstract

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## 1. Introduction

## 2. Literature Review

#### 2.1. Theoretical Literature

#### 2.2. Empirical Literature

## 3. Methodology

#### 3.1. Continuous Wavelet Transform (CWT)

#### 3.2. Multivariate Wavelet Methods

#### 3.2.1. The Wavelet Cohesion

#### 3.2.2. Wavelet Multiple Correlation (WMC) and Wavelet Multiple Cross-Correlation (WMCC)

#### 3.2.3. Value at Risk Analysis (VaR)

## 4. Data Description

## 5. Empirical Findings and Discussion

#### 5.1. The Wavelet Coherence (WC) Analysis

#### 5.1.1. Co-Movement between Sukuk Sub-Indices and between Shariah Stocks

#### 5.1.2. Co-Movement between Sukuk Sub-Indices and Shariah Stocks

#### 5.2. Wavelet Cohesion Analysis

#### 5.3. Wavelet Multiple Correlation Analysis

#### 5.4. Wavelet Multiple Cross-Correlation Analysis (WMCC)

#### 5.5. Value at Risk Sukuk-Shariah Stocks Portfolio Analysis

## 6. Conclusions and Policy Implications

## Author Contributions

## Funding

## Conflicts of Interest

## Appendix A

#### Appendix A.1. Composition of Global Sukuk Market

#### Appendix A.2. Composition of S&P Shariah Indices

## References

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1 | Global Islamic Finance Report. |

2 | |

3 | Oman, Bahrain, Saudi Arabia, Kuwait, Abu Dhabi, and Dubai. |

**Figure 1.**Wavelet coherence (WC) between sukuk sub-indices and between shariah stocks. Notes: The time interval is shown on the horizontal axis, while the time-scales are displayed on the perpendicular axis. The color bar on the right-hand side of each graph shows the range of coherency from the low (dark blue color) to high (yellow color). The dark lines represent the 5% significance level for WC.

**Figure 2.**WC between sukuk sub-indices and shariah stocks. Notes: The time interval is shown on the horizontal axis, while time-scales are displayed on the vertical axis. The color bar on the right-hand side of each graph shows the range of coherency from the low (dark blue color) to the high (yellow color). The dark lines represent the 5% significance level for WC.

**Figure 4.**Wavelet multiple correlation between the sukuk and the shariah stock indices. Notes. The dotted lines show the upper and lower bonds at the 5% significance level.

Variables | Description |
---|---|

NISKGC index | NASDAQ Dubai IdealRatings USD GCC SUKUK index |

NISKC Index | NASDAQ Dubai IdealRatings USD Corporate SUKUK index |

NISKF Index | NASDAQ Dubai IdealRatings USD Financials SUKUK index |

SPSHGT Index | S&P GCC Composite Shariah Total Stock Returns Index |

SPSHG Index | S&P GCC Composite Shariah Stock Index |

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**MDPI and ACS Style**

Nasreen, S.; Naqvi, S.A.A.; Tiwari, A.K.; Hammoudeh, S.; Shah, S.A.R.
A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification. *J. Risk Financial Manag.* **2020**, *13*, 63.
https://doi.org/10.3390/jrfm13040063

**AMA Style**

Nasreen S, Naqvi SAA, Tiwari AK, Hammoudeh S, Shah SAR.
A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification. *Journal of Risk and Financial Management*. 2020; 13(4):63.
https://doi.org/10.3390/jrfm13040063

**Chicago/Turabian Style**

Nasreen, Samia, Syed Asif Ali Naqvi, Aviral Kumar Tiwari, Shawkat Hammoudeh, and Syed Ale Raza Shah.
2020. "A Wavelet-Based Analysis of the Co-Movement between Sukuk Bonds and Shariah Stock Indices in the GCC Region: Implications for Risk Diversification" *Journal of Risk and Financial Management* 13, no. 4: 63.
https://doi.org/10.3390/jrfm13040063