Oil shocks and the Islamic financial market: Evidence from a causality-in-quantile approach

Raheem, Ibrahim D.; le Roux, Sara; Rehman, Mobeen Ur

Abstract

This study examines the nonlinear relationship between Islamic stock indices and oil shocks. Nonlinearity is viewed from the prism of nonparametric causality-in-quantile, and oil price is decomposed into demand, supply, and risk. The objective of this study is to examine the causality between sectoral Islamic stocks and oil shocks. Using a dataset for ten sectoral Islamic stock indices, we show that causality between the variables of interest is heterogenous across (i) measures of shocks (i.e., demand, supply, or risk), (ii) types of the sector (i.e., the ten sectors), (iii) state of the market (bear, normal, bull) and (iv) model specifications (mean vs. variance equation). We find that for the US, sectoral returns, demand and risk shocks affect Industrial, Information Technology, and ESG sectors across all quantiles, while supply shocks cause changes across normal market conditions. The US healthcare sector remains insensitive and the communications sector is affected only across extreme quantiles. Each oil shock exhibits a significant causal effect on Asian Pacific and Emerging Islamic markets consistently across all quantiles. Developed and European Islamic markets remain sensitive to risk-related shocks. Policy implications of these results are discussed.

Citation

Raheem, I. D., le Roux, S., & Rehman, M. U. (2024). Oil shocks and the Islamic financial market: Evidence from a causality-in-quantile approach. International Economics, 180, 1-11. https://doi.org/10.1016/j.inteco.2024.100559

• Journal Article Type: Article
• Acceptance Date: Oct 17, 2024
• Online Publication Date: Oct 19, 2024
• Publication Date: 2024-12
• Deposit Date: Dec 19, 2024
• Journal: International Economics
• Print ISSN: 2110-7017
• Electronic ISSN: 2542-6869
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 180
• Article Number: 100559
• Pages: 1-11
• DOI: https://doi.org/10.1016/j.inteco.2024.100559
• Keywords: Islamic stocks, oil price shocks, causality-in-quantile
• Public URL: https://keele-repository.worktribe.com/output/1015859
• Additional Information: This article is maintained by: Elsevier; Article Title: Oil shocks and the Islamic financial market: Evidence from a causality-in-quantile approach; Journal Title: International Economics; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.inteco.2024.100559; Content Type: article; Copyright: © 2024 The Authors. Published by Elsevier B.V. on behalf of CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy.