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

1
Department of Economics, Lahore College for Women University, Lahore 53720, Pakistan
2
Department of Economics, Government College University, Faisalabad 38000, Pakistan
3
Rajagiri Valley Campus, Rajagiri Business School, Kochi 682001, India
4
Economics and International Business, Lebow College of Business, Drexel University, Philadelphia, PA 19104, USA
*
Author to whom correspondence should be addressed.
J. Risk Financial Manag. 2020, 13(4), 63; https://doi.org/10.3390/jrfm13040063
Received: 11 February 2020 / Revised: 10 March 2020 / Accepted: 25 March 2020 / Published: 29 March 2020
(This article belongs to the Special Issue Modern Portfolio Theory)
Investors are interested in knowing whether sukuk bonds and shariah stock indices in the Gulf Corporation Council (GCC) region are related. This study examines the connectedness between the sukuk- and shariah-compliant stock indices in the GCC financial markets. Bivariate and multivariate wavelet approaches are applied to the daily data covering the period 10 July 2008 to 15 May 2017. The empirical findings demonstrate a strong correlation between these GCC sukuk bond indices and shariah stock indices. The degree of connectedness between these sukuk and shariah stock indices varies across time and scale. A strong and positive association is observed in the short term and a negative association is evident in the long term. The same findings are observed, using the wavelet cohesion approach that also validates the existence of portfolio diversification opportunities at a short-time horizon. The multivariate cross-correlation analysis reveals that these sukuk and shariah stock markets are highly integrated across time and scale. Furthermore, the value at risk (VaR) for the sukuk bond–shariah stocks portfolio is performed to highlight the significance of the wavelet analysis. The outcomes show that portfolio stocks are variable with respect to time or scale (time diversification). Overall, analyzing the sukuk bond–shariah stock index returns in the GCC at a multiscale level makes it easier for financial agents dealing with heterogeneous trading horizons to assess the benefits of diversifications. View Full-Text
Keywords: sukuk; Islamic stocks; wavelet analyses; value at risk sukuk; Islamic stocks; wavelet analyses; value at risk
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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.

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