Volatility transmission between Islamic and conventional equity markets: evidence from causality-in-variance test

This study examines whether a volatility/risk transmission exists between Dow Jones Islamic stock and three conventional stock markets for the States, Europe and Asia during the pre- and the in- and post-2008 periods. It also explores the volatility spillover dynamics between markets and US Monetary policy, oil prices, global financial risk and factors. The recently developed Hafner and Herwartz (2006)’s -in-variance test provides evidence of risk transfers between seemingly different equity markets, indicating a contagion between during the full sample and the subperiods. The volatility structure of markets is dominated by short-run volatility in the first period and by long-run volatility in the second period. The volatility impulse analysis indicates a similar volatility transmission pattern it is characterized by a more volatile and short-lived structure the second period. It also appears that the Islamic equity market to shocks from the risk factors and not from the oil price and US economic policy uncertainty index during both periods.