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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.


JEL codes: C13; C51; G14; G15

Journal Article Type Article
Publication Date 2019-08
Journal The North American Journal of Economics and Finance
Print ISSN 1062-9408
Publisher Elsevier
Peer Reviewed Peer Reviewed
Pages 101056
APA6 Citation Salisu, A. A., Ndako, U. B., Adediran, I. A., & Swaray, R. (2019). A fractional cointegration VAR analysis of Islamic stocks: A global perspective. North American journal of economics and finance, 101056. https://doi.org/10.1016/j.najef.2019.101056
DOI https://doi.org/10.1016/j.najef.2019.101056
Keywords Economics and Econometrics; ; Islamic stocks; Efficient Market Hypothesis; Fractional Integration; FCVAR.
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