Mohamed Fakhfekh, Ahmed Jeribi, Ahmed Ghorbel and Nejib Hachicha
In a first place, the present paper is designed to examine the dynamic correlations persistent between five cryptocurrencies, WTI, Gold, VIX and four stock markets (SP500, FTSE…
Abstract
Purpose
In a first place, the present paper is designed to examine the dynamic correlations persistent between five cryptocurrencies, WTI, Gold, VIX and four stock markets (SP500, FTSE, NIKKEI and MSCIEM). In a second place, it investigates the relevant optimal hedging strategy.
Design/methodology/approach
Empirically, the authors examine how WTI, Gold, VIX and five cryptocurrencies can be applicable to hedge the four stock markets. Three variants of multivariate GARCH models (DCC, ADCC and GO-GARCH) are implemented to estimate dynamic optimal hedge ratios.
Findings
The reached findings prove that both of the Bitcoin and Gold turn out to display remarkable hedging commodity features, while the other assets appear to demonstrate a rather noticeable disposition to act as diversifiers. Moreover, the results show that the VIX turns out to stand as the most effectively appropriate instrument, fit for hedging the stock market indices various related refits. Furthermore, the results prove that the hedging strategy instrument was indifferent for FTSE and NIKKEI stock while for the American and emerging markets, the hedging strategy was reversed from the pre-cryptocurrency crash to the during cryptocurrency crash period.
Originality/value
The first paper's empirical contribution lies in analyzing emerging cross-hedge ratios with financial assets and compare hedging effectiveness within the period of crash and the period before Bitcoin crash as well as the sensitivity of results to refits choose to compare between short term hedging strategy and long-term one.
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Ahmed Ghorbel, Mohamed Fakhfekh, Ahmed Jeribi and Amine Lahiani
The paper analyzes downside and upside risk spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.
Abstract
Purpose
The paper analyzes downside and upside risk spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.
Design/methodology/approach
By using VAR-ADCC models and conditional value at risk (CoVaR) techniques, downside and upside risk spillovers between stock markets of G7 countries and China are analyzed before and during the COVID-19 pandemic.
Findings
The results suggested existence of a significant and asymmetrical two-way risk transmission between majority of pair markets, but the degree of asymmetry differs according to the use of the entire cumulative distributions or distribution tails. Downside and upside risk spillovers are significantly larger before the COVID-19 pandemic in all cases except between CAC 40/DAX and S&P/SSE pairs.
Originality/value
The paper used CoVaR and delta-CoVaR to investigate the downside and upside spillovers between stock markets of G7 countries and China before and during the COVID-19 pandemic.
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Ahmed Jeribi, Mohamed Fakhfekh and Anis Jarboui
Previously elaborated research works, dealing with the political uncertainty effect on stock market, have been primarily concerned with such political events as terrorist attacks…
Abstract
Purpose
Previously elaborated research works, dealing with the political uncertainty effect on stock market, have been primarily concerned with such political events as terrorist attacks, elections, wars, natural catastrophes and financial crashes. Such little research has been concerned with civil uprisings and revolutionary movements, as crucial sources of political uncertainty. The purpose of this paper is to study the impact of political uncertainty (resulting from the Tunisian Revolution) on the volatility of major sectorial stock indices in the Tunisian Stock Exchange (TSE).
Design/methodology/approach
The authors apply the fractionally integrated exponential generalized autoregressive conditional heteroscedasticity model (FIEGARCH), which helps maintain a direct shock-persistence as well as a shock asymmetric volatility measurement. This model is applied to the daily returns relevant to nine sectorial stock indices and to the Tunisian benchmark index (TUNINDEX) with respect to three sub-periods (before, during and follows the Tunisian Revolution).
Findings
The reached findings suggest that the shock impact throughout the Revolution period on construction, industries, consumer services, financial services, financial companies indices’ sectorial and the TUNINDEX return volatilities have proven to be permanent, while its persistence on the other indices has been discovered to be transitory. In addition, the achieved results appear to reveal a low leverage effect on all indices. This result seems to be very important since the Tunisian Revolution turns out to have a very important effect on the TSE.
Originality/value
The paper’s empirical contribution lies in using the FIEGARCH approach to model the Tunisian sectorial indices’ volatility dynamics, persistence degree and leverage effect. This contribution goes a long way in helping regulators and international investors to further recognize the extent to which political instability does participate in affecting the TSE.
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Mohamed Ali Trabelsi and Naama Trad
The purpose of this paper is to examine whether Islamic finance could replace or complement the traditional financial system and could guarantee stability in times of crisis.
Abstract
Purpose
The purpose of this paper is to examine whether Islamic finance could replace or complement the traditional financial system and could guarantee stability in times of crisis.
Design/methodology/approach
To achieve the aim, the authors examined both risk-taking and profitability of 94 Islamic banks (IBs) operating in 18 countries observed during the 2006-2013 financial crisis period. A series of bank-specific and other country-specific indicators are combined to explain profitability of IBs as measured by return on assets and return on equity, and risk divided into credit risk measured by impaired loans/gross loans and total equity/net loans, and insolvency risk measured by Z-score. Indeed, a bank is stronger than another if it is stable with a higher capacity to absorb risks, on the one hand, and increased performance on the other.
Findings
Using dynamic panel data econometrics (generalized moment method system), the authors estimated five regressions and found the following results: bank capital is found to be the main indicator that contributes to maximizing profitability and stability of IBs and reducing their credit risk. However, the study of liquidity and asset quality determinants often leads to inconclusive results. Nevertheless, they found that Gulf region-operating IBs are more profitable, more solvent and less risky than those operating in the South East Asian region. At the macroeconomic level, the authors could not find a significant relationship between inflation rate and IBs profitability. However, unlike for IBs in Southeast Asia, the authors found that inflation rate improves IBs stability and reduces their credit risk level.
Practical implications
The results of this study have numerous implications for bank management and the different stakeholders (investors, customers). This study identified several factors that may help bank managers to improve their financial outlook by controlling risk level and profitability. These factors could as well help to understand how macroeconomic indicators affect both banking risk and profitability, in particular Islamic banking. Likewise, portfolio managers can use these results to support their decisions to include IBs in their assets portfolios to mitigate potential risk.
Originality/value
This study contributes to the existing literature in two ways. First, this paper provides fresh data and recent information on Islamic banking in Gulf Cooperation Council and South East Asian countries. Second, the obtained results helped us to conclude that the Islamic financial system cannot replace but rather supplements the traditional system. This result may be explained by the fact that Muslims look for Islamic banking products, which conventional banks are not offering.
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Yasmine Snene Manzli and Ahmed Jeribi
This paper aims to investigate the safe haven feature of Bitcoin, gold and two gold-backed cryptocurrencies (DGX and PAXG) against energy and agricultural commodities (crude oil…
Abstract
Purpose
This paper aims to investigate the safe haven feature of Bitcoin, gold and two gold-backed cryptocurrencies (DGX and PAXG) against energy and agricultural commodities (crude oil, natural gas and wheat) during the COVID-19 pandemic, the Russia–Ukraine conflict and the Silicon Valley Bank (SVB) collapse.
Design/methodology/approach
The authors use the threshold GARCH (T-GARCH)-asymmetric dynamic conditional correlation (ADCC) model to evaluate the asymmetric dynamic conditional correlation between the return series and compare the diversifying, hedging and safe-haven ability of Bitcoin, gold and the two gold-backed cryptocurrencies (DGX and PAXG) against financial swings in the commodity market during the COVID-19 outbreak, the Russian–Ukrainian military conflict and SVB collapse. The authors also calculate the hedging ratios (HR) and hedging effectiveness index (HE). The authors finally use the wavelet coherence (WC) approach to check our results’ robustness and further investigate the impact of the three crises on the relationship between Bitcoin, gold gold-backed cryptocurrencies and commodities.
Findings
The results show that PAXG serves as a strong hedging instrument while gold, Bitcoin and DGX act as strong diversifiers during normal times. During crises, gold outperforms Bitcoin as a diversifier and a safe haven against commodities. Gold-backed cryptocurrencies also exhibit strong performance as diversifiers and safe havens. HR results indicate that Bitcoin and DGX are more cost-effective for commodities risk mitigation than gold and PAXG. In terms of hedging effectiveness, gold and PAXG emerge as the best hedging instruments for commodities, while DGX is considered the worst one. Bitcoin shows superior hedging against oil compared to wheat and gas risks. Moreover, the results of the WC approach confirm those of the T-GARCH-ADCC results in both the short and long run.
Originality/value
This paper provides a comprehensive analysis of the diversification ability of gold, Bitcoin and gold-backed cryptocurrencies during different crises (the COVID-19 pandemic, the Russia–Ukraine conflict and the SVB collapse). By taking into consideration gold-backed cryptocurrencies, the authors expand the understanding of safe havens beyond conventional assets.
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This study investigates the diversification benefits of multiple cryptocurrencies and their usefulness as investment assets, individually or combined, in enhancing the performance…
Abstract
Purpose
This study investigates the diversification benefits of multiple cryptocurrencies and their usefulness as investment assets, individually or combined, in enhancing the performance of a well-diversified portfolio of traditional assets before and during the pandemic COVID-19.
Design/methodology/approach
This paper uses two optimization techniques, namely the mean-variance and the maximum Sharpe ratio. The naïve diversification rules are used for comparison. Besides, the Sharpe and the Sortino ratios are used as performance measures.
Findings
The results show that cryptocurrencies diversification benefits occur more during the COVID-19 pandemic rather than before it, with the maximum Sharpe ratio portfolio presenting its highest performance. Furthermore, the results suggest that, during COVID-19, the diversification benefits are slightly better when using a combination of cryptocurrencies to an already well-diversified portfolio of traditional assets rather than individual ones. This serves to improve the performance of the maximum Sharpe ratio portfolio, and to some extent, the naïve portfolio. Yet, cryptocurrencies, whether added individually or combined to a well-diversified portfolio of traditional assets, don't fit in the minimum variance portfolio. Besides, the efficient frontier during COVID-19 pandemic dominates the one before COVID-19 pandemic, giving the investor a better risk-return trade-off.
Originality/value
To the best of the author's knowledge, this is the first study that examines the diversification benefits of multiple cryptocurrencies both as individual investments and as additional asset classes, before and during COVID-19 pandemic. The paper covers all analyses performed separately in previous studies, which brings new evidence regarding the potential for cryptocurrencies in portfolio diversification under different portfolio strategies.
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Siong Min Foo, Nazrul Hisyam Ab Razak, Fakarudin Kamarudin, Noor Azlinna Binti Azizan and Nadisah Zakaria
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Abstract
Purpose
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Design/methodology/approach
The study uses the bibliometric and content analysis methods using the VOSviewer software to analyse 52 academic documents derived from the Web of Sciences (WoS) between 2015 and June 2022.
Findings
The results demonstrate the influential aspects of spillovers between Islamic and conventional financial markets, including the leading authors, journals, countries and institutions and the intellectual aspects of literature. These aspects are synthesised into four main streams: research between stock indexes; studies between stock indexes, oil and precious metal; works between Sukuk, bond and indexes; and empirical studies review. The authors also propose future research directions in spillovers between Islamic and conventional financial markets.
Research limitations/implications
Our study is subject to several limitations. Firstly, the authors only used the WoS database. Secondly, the study only includes papers and reviews written in English from the WoS. This study assists academic scholars, practitioners and regulatory bodies in further exploring the suggested issues in future studies and improving and predicting economic and financial stability.
Originality/value
To the best of the authors’ knowledge, no extant empirical studies have been conducted in this area of research interest.
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Yousra Trichilli, Mouna Boujelbène Abbes and Sabrine Zouari
This paper examines the impact of political instability on the investors' behavior, measured by Google search queries, and on the dynamics of stock market returns.
Abstract
Purpose
This paper examines the impact of political instability on the investors' behavior, measured by Google search queries, and on the dynamics of stock market returns.
Design/methodology/approach
First, by using the DCC-GARCH model, the authors examine the effect of investor sentiment on the Tunisian stock market return. Second, the authors employ the fully modified dynamic ordinary least square method (FMOL) to estimate the long-term relationship between investor sentiment and Tunisian stock market return. Finally, the authors use the wavelet coherence model to test the co-movement between investor sentiment measured by Google Trends and Tunisian stock market return.
Findings
Using the dynamic conditional correlation (DCC), the authors find that Google search queries index has the ability to reflect political events especially the Tunisian revolution. In addition, empirical results of fully modified ordinary least square (FMOLS) method reveal that Google search queries index has a slightly higher effect on Tunindex return after the Tunisian revolution than before this revolution. Furthermore, by employing wavelet coherence model, the authors find strong comovement between Google search queries index and return index during the period of the Tunisian revolution political instability. Moreover, in the frequency domain, strong coherence can be found in less than four months and in 16–32 months during the Tunisian revolution which show that the Google search queries measure was leading over Tunindex return. In fact, wavelet coherence analysis confirms the result of DCC that Google search queries index has the ability to detect the behavior of Tunisian investors especially during the period of political instability.
Research limitations/implications
This study provides empirical evidence to portfolio managers that may use Google search queries index as a robust measure of investor's sentiment to select a suitable investment and to make an optimal investments decisions.
Originality/value
The important research question of how political instability affects stock market dynamics has been neglected by scholars. This paper attempts principally to fill this void by investigating the time-varying interactions between market returns, volatility and Google search based index, especially during Tunisian revolution.
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Over a short interval of time (i.e. 2011-2014), Egypt has experienced tectonic political shifts, including the toppling of a long-entrenched dictator, two presidential elections…
Abstract
Purpose
Over a short interval of time (i.e. 2011-2014), Egypt has experienced tectonic political shifts, including the toppling of a long-entrenched dictator, two presidential elections, and a military coup. The purpose of this paper is to provide an analysis of the impact of such events on the country’s equity market behaviour, both in terms of returns and volatility.
Design/methodology/approach
The data set is composed of daily stock index closing prices for the overall market and top eight most actively traded sectors. To assess the impact of the considered events on the market and sector returns, an event study approach is applied. On the other hand, a univariate VAR-EGARCH model is employed to explore whether, and to what extent, volatilities at the market and sector levels respond to such events.
Findings
The results suggest that political uncertainty has a profound impact on the risk-return profiles of almost all market sectors, with different degrees of intensity. By and large, the price and volatility effects are most pronounced in banks, financial services excluding banks and chemicals sectors, whilst food and beverages as well as construction and materials sectors are found to be the least responsive to these events. The 2013 military coup turns out to be the most pervasive event impinging on the market and sector-specific indices.
Practical implications
The results have a number of practical implications that could be of interest to many parties involved. More specifically, with political dysfunction overshadowing business and investment activities in Egypt, genuine democratic reforms, which entail proper regard for human rights and the rule of law, must have the highest priority of policymakers, in order to secure a positive investment climate and to foster investor confidence. Furthermore, in tandem with considering other relevant factors, multinational companies need to have a thorough assessment of Egypt’s future political course and to develop more robust contingency plans to effectively combat potential threats generated by political vicissitudes.
Originality/value
To the author’s best knowledge, this study is the first attempt to empirically examine the price and volatility effects of the recent presidential events in Egypt, thereby contributing to the relevant literature in this area.
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Ahmed A. El-Masry and Osama M. Badr
This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two…
Abstract
Purpose
This paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.
Design/methodology/approach
In this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.
Findings
The results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.
Research limitations/implications
As this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.
Practical implications
The existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.
Originality/value
This paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.