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Exploring Efficiency, Co-integration, Causality and Volatility Clustering in Unrestricted and Islamic Portfolios

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Islamic Capital Markets

Part of the book series: Palgrave CIBFR Studies in Islamic Finance ((PCSIF))

Abstract

Unlike unrestricted portfolios, Islamic portfolios have a narrow opportunity set for investment. They also face trading restrictions due to the prohibition of futures, short selling, options and day trading which can potentially create significant limits to arbitrage. In this study, we explore weak-form market efficiency in comparable unrestricted and Islamic portfolios. The study also investigates the existence of Autoregressive Conditional Heteroscedasticity (ARCH) effects in the returns series of unrestricted and Islamic portfolios in developed and emerging markets. Finally, we also investigate the existence of bi-directional causality between portfolios. From the runs test, we find that the returns of most indices are random, except for a few. Finally, we also find strong evidence for co-integration and causality in both directions between Islamic and unrestricted market portfolios.

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Author information

Authors and Affiliations

  1. Universiti Kebangsaan Malaysia, Bangi, Malaysia

    Salman Ahmed Shaikh, Muhammad Hakimi Mohd. Shafiai, Abdul Ghafar Ismail & Mohd. Adib Ismail

  2. The Islamic Research and Training Institute, Jeddah, Saudi Arabia

    Abdul Ghafar Ismail

Authors
  1. Salman Ahmed Shaikh
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  2. Muhammad Hakimi Mohd. Shafiai
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  3. Abdul Ghafar Ismail
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  4. Mohd. Adib Ismail
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Editor information

Editors and Affiliations

  1. University of Nottingham, Malaysia, Selangor, Malaysia

    Nafis Alam

  2. University of Nottingham, Malaysia, Selangor, Malaysia

    Syed Aun R. Rizvi

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Shaikh, S.A., Shafiai, M.H.M., Ismail, A.G., Ismail, M.A. (2016). Exploring Efficiency, Co-integration, Causality and Volatility Clustering in Unrestricted and Islamic Portfolios. In: Alam, N., Rizvi, S. (eds) Islamic Capital Markets. Palgrave CIBFR Studies in Islamic Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-33991-7_6

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  • DOI: https://doi.org/10.1007/978-3-319-33991-7_6

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-33990-0

  • Online ISBN: 978-3-319-33991-7

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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