Hidden cointegration reveals hidden values in Islamic investments

Abstract : We explore long-run relationships between Islamic and conventional equity indices for the period 2000–2014. We adopt a hidden co-integration technique to decompose the series into positive and negative components; thus allowing the investigation of the indices during upward and downward markets. We find evidence of bi-directional dynamics during upward, downward and some mixed market movements. However, after adding control variables to our models, only the relationship for the negative components retains its significance; indicating that the Islamic index is the least responsive during bad times. This highlights the robust nature of Islamic investments and a possible differentiated investor reaction to financial information during market downtrends. Implications for practitioners are highlighted in a case study.
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Submitted on : Monday, February 4, 2019 - 3:31:48 PM
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Christos Alexakis, Vasileios Pappas, Alexandros Tsikouras. Hidden cointegration reveals hidden values in Islamic investments. Journal of International Financial Markets, Institutions and Money, Elsevier, 2017, 46, pp.70-83. ⟨10.1016/j.intfin.2016.08.006⟩. ⟨hal-02006352⟩

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