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

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

Authors

Afees A. Salisu

Umar B. Ndako

Idris A. Adediran

Dr Raymond Swaray R.Swaray@hull.ac.uk
Senior Lecturer (Associate Professor) in Economics



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, 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

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