Frequency connectedness and spillovers among oil and Islamic sector stock markets: Portfolio hedging implications

Walid Mensi, Sami Al Kharusi, Xuan Vinh Vo, Sang Hoon Kang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Using the asymmetric Baba-Engle-Kraft-Kroner (BEKK)-GARCH model and the frequency spillover methodology by Baruník and Křehlík (2018), this paper examines spillovers and portfolio management between crude oil and US Islamic sector stocks. The results show significant time-varying spillovers between oil and Islamic sectors. The short-term spillovers are stronger than their long-term counterparts. The spillovers intensify during extreme events (global financial crisis and COVID-19 pandemic). The aggregate index, consumer services, raw materials, and manufacturing are net contributors of spillovers in the short term, whereas the remaining sectors are net recipients. In the long-term horizon, we find that consumer goods and finance become net transmitters of spillovers. The raw materials sector becomes a net recipient of spillovers in the long term. Finally, hedging effectiveness is lower in the long term than in the short term during the oil crisis in 2015–2016 and the US presidential election in 2017, US-China trade tension, and the COVID-19 pandemic.

Original languageEnglish
JournalBorsa Istanbul Review
DOIs
Publication statusAccepted/In press - 2022

Keywords

  • Asymmetric BEEK-GARCH model
  • COVID-19
  • Frequency spillovers
  • Hedging
  • Islamic sectors
  • Oil

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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