7th Spring MFS Conference - A preliminary version of the conference program is now available online
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New Forthcoming Article at Multinational Finance Journal
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New Forthcoming Article at Multinational Finance Journal
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Forthcoming MFJ Article

An Analysis of Spillovers Between Islamic and Conventional Stock Bank Returns: Evidence from the GCC Countries

Slim Mseddi, Al Imam Mohammad Ibn Saud Islamic University, Saidi Arabia
Noureddine Benlagha, Qatar University, Qatar

This paper features an application of Diebold and Yilmazs (2009) spillover index model to assess the impact of the global financial crisis on spillovers to the bank sectors in terms of both returns and volatility time series. The spillover investigation is performed on daily return data for Islamic and conventional banks in the Gulf Cooperation Council countries for the period 2005-2015. This is followed by an application of a dynamic conditional multivariate GARCH to directly model the time varying spillover effects among the studied time series. This study finds a strong bidirectional returns spillover between conventional banks and a very weak spillover from Islamic banks to conventional banks, so the transmission of shocks from Islamic banks to conventional banks is reduced. This investigation also finds that the dependence between stock returns in an Islamic bank market structure is more strongly affected by the financial crisis than in a conventional bank market. Moreover, the volatility linkage is highly affected by the crisis in an Islamic context than that in a conventional bank system. Finally, using the DCC-GARCH model this study show a high persistence in the time series of correlation among all GCC countries, except Bahrain, indicating that a long-run average of the correlation can be pushed away by shocks for a very long period. The results of this empirical investigation are expected to have potentially important implications for improving the process of selection and allocation for domestic and international portfolios.

Keywords: financial crisis; islamic banks; spillover index; dependence; multivariate GARCH

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