DYNAMIC CONNECTEDNESS BETWEEN ISLAMIC MENA STOCK MARKETS AND GLOBAL FACTORS

This article examines the volatility spillover from the regional and global Islāmic stock markets, global conventional stock market, global commodity markets including oil and gold, and the US long-term interest rates into the Islāmic stock and Ṣukūk markets of a selected group of the Middle East and North Africa (MENA) nations. We implement the Diebold and Yilmaz (2012, 2014) spillover index, refined with time-varying parameter vector autoregressions (TVP-VAR) of Antonakakis, Chatziantoniou, and Gabauer (2020), on daily data between November 3, 2009 and November 1, 2019. We explore that the volatility spillovers among the Islāmic markets are prominently low, posing poorly connected with the Ṣukūk market, global Islāmic, and conventional stock markets. Our results support the decoupling hypothesis of Islamic stock markets from the conventional stock market; as it follows, the US investors, who add to their portfolios certain Islāmic stocks of the MENA countries, may benefit to a large extent from those diversifications. This study is among a few studies deploying country-level data, choosing its locus of the Islāmic stock markets in the MENA region. The study is the first one examining the potential risk transmission from global factors to both the Islāmic stock markets and the Global Ṣukūk market. The econometric framework is, for the first time, used to investigate the volatility spillovers between the global factors and the Islāmic markets.