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Alexakis, Christos, Kenourgios, Dimitris, Pappas, Vasileios and Petropoulou, Athina (2021) 'From dotcom to Covid-19: A convergence analysis of Islamic investments.' Journal of International Financial Markets, Institutions & Money. (Forthcoming)

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Abstract

This paper goes beyond the extant comparisons of Islamic and conventional investments by econometrically assessing their convergence dynamics, in a dataset spanning over 1996-2020, covering ten business sectors and five episodes of crisis. We use a dynamic multivariate framework to estimate time-varying correlations, which we submit to beta and sigma-convergence analysis. Subsequently we examine how convergence dynamics affect portfolio risk management and crisis propagation. Our results show strong convergence of Islamic and conventional investments. During crises conventional convergence rates double, but Islamic ones are less affected. Sectoral diversification works best for conventional investments; Islamic ones behave as a single entity. On average we document a 7% risk diversification benefit from Islamic investments, at a 64 basis points cost. Yet, at the epicentre of the Covid-19 financial crisis this rises to 466 basis points and highlights the resilience of these investments in an exogenous event. Islamic investments reduce volatility spillovers in the financial system, but they are progressively less insulated across time. Our findings withstand a battery of robustness checks and are primarily useful to policy makers and investors.

Item Type: Journal Article
Keywords: Convergence; Contagion; Crisis; Difference-in-difference; Dynamic correlation; Economy sectors; Islamic finance; Portfolio
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
Subjects: H Social Sciences > HG Finance
ISSN: 10424431
DOI (Digital Object Identifier): https://doi.org/10.1016/j.intfin.2021.101423
Date Deposited: 17 Sep 2021 16:47
URI: https://eprints.soas.ac.uk/id/eprint/35509
Related URLs: https://www.sci ... 042443121001372 (Publisher URL)

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