Interest Rate Exposure and Stocks Returns during Global Financial Crisis: Evidence from Islamic and Conventional Markets

Majid Imdad Khan · Waheed Akhter · Usman Bhutta

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Islamic Finance and Banking Studies Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

This study aims to assess the impact of interest rate change on stocks returns and volatility of Islamic and Conventional stock market indices during global financial crisis for the period from 04 January, 2005 to 30 December, 2015.The stock indices of China (SSE), India (BSE) and Pakistan (PSE) as conventional, and Malaysia (DJIM), Indonesia (JKII) and Dow Jones World Islamic Index (DJWI) (Benchmark) as Islamic markets are employed into consideration, respectively. The volatility and conditional correlation are examined through GARCH (1, 1) and Multivariate-DCC GARCH, respectively. The results indicate that Islamic stock indices had low interest rate exposure and less stocks volatility than that of conventional stock indices during the global financial crisis period. This research has important implication for investors that they may consider Islamic stock markets as a safe haven during financial crises.

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1982The stochastic behavior of common stock variances Value, leverage and interest rate effects 2012Stock Market Volatility and Macroeconomic Fundamentals 2001The Determinants of Asymmetric Volatility 1977A Theory of Systemic Fragility 2014Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis 2016Islamic financial markets and global crises: Contagion or decoupling?2015Global financial crisis and emerging stock market contagion: A volatility impulse response function approach 2014Are Dow Jones Islamic equity indices exposed to interest rate risk?

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