A fractional cointegration VAR analysis of Islamic stocks: A global perspective

Salisu, Afees A.; Ndako, Umar B.; Adediran, Idris A.; Swaray, Raymond

Abstract

In this study, we analyse the behaviour of Islamic stocks from a global perspective covering an array of regional Islamic stock markets. Both the fractional integration and fractional cointegration techniques are employed. Thus, we are able to establish whether Islamic stocks are individually integrated with a fractional order on the one hand and whether they are fractionally cointegrated on the other hand. We find that all the regional Islamic stock markets exhibit long memory but are mean reverting regardless of the choice of fractional integration technique and data sample. Second, using the fractional cointegration VAR (FCVAR) approach of Johansen and Nielsen (2012), we find that all the regional stock markets are cointegrated with a fractional order and this behaviour may be influenced by global economic conditions. Further analyses suggest that ignoring the fractional integration property of Islamic stocks when modelling their long run behaviour may lead to wrong conclusions. Also, the economic significance test conducted indicates that Islamic financial markets offer risk hedging characteristics and the results are robust to alternative data frequencies.

Citation

Salisu, A. A., Ndako, U. B., Adediran, I. A., & Swaray, R. (2020). A fractional cointegration VAR analysis of Islamic stocks: A global perspective. North American journal of economics and finance, 51, Article 101056. https://doi.org/10.1016/j.najef.2019.101056

• Journal Article Type: Article
• Acceptance Date: Aug 26, 2019
• Online Publication Date: Aug 27, 2019
• Publication Date: 2020-01
• Deposit Date: Sep 3, 2019
• Publicly Available Date: Aug 28, 2020
• Journal: North American Journal of Economics and Finance
• Print ISSN: 1062-9408
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 51
• Article Number: 101056
• DOI: https://doi.org/10.1016/j.najef.2019.101056
• Keywords: Economics and Econometrics; ; Islamic stocks; Efficient Market Hypothesis; Fractional Integration; FCVAR
• Public URL: https://hull-repository.worktribe.com/output/2598354