Testing the Conditional Correlations and Volatility Spillovers between US and ASEAN Islamic Stock Markets: A Multivariate GARCH Analysis

Sutan Emir Hidayat; Abdullah Al-Hadrami; Muhammad Rizky Prima Sakti

doi:10.14421/grieb.2022.101-05

Authors

Sutan Emir Hidayat Komite Nasional Ekonomi dan Keuangan Syariah (KNEKS) and Fakultas Ekonomi, Universitas Gunadarma, Jakarta, Indonesia
Abdullah Al-Hadrami Faculty of Business, Higher Colleges of Technology, United Arab Emirates
Muhammad Rizky Prima Sakti University College Bahrain (UCB), Manama, Bahrain

DOI:

https://doi.org/10.14421/grieb.2022.101-05

Keywords:

Islamic Stock Markets, Conditional Correlations, Volatility Spillovers, Multivariate GARCH, BEKK, ASEAN

Abstract

This study examines the conditional correlations and volatility spillovers between the US and ASEAN Islamic stock markets. The empirical design uses MSCI (Morgan Stanley Capital International) Islamic indexes as it adopted stringent restrictions to include companies in the sharia list. By using three multivariate GARCH models (BEKK, diagonal VECH, and CCC model), we find evidence of returns and volatility spillovers from the US to the ASEAN Islamic stock markets. However, as the estimated time-varying conditional correlations and volatilities indicate there is still room for diversification benefits, particularly in the single markets. The Islamic MSCI of Thailand, Indonesia, and Singapore are less correlated to the US MSCI Islamic index. The implication is that foreign investors may benefit from the reduction of risk by adding Islamic stocks in those countries.

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