Islamic equity investments and the COVID-19 pandemic

Global equity markets experienced a substantial downfall with the outbreak of the COVID-19 pandemic. At the peak of the downfall, S&P Dow Jones reported that their Islamic equity indexes (IEIs) continued to outperform their conventional counterparts in the first quarter of 2020. The equity markets have since recovered and have touched historical peaks. This study empirically investigates how Islamic equity investment weathered the troughs and peaks of equity markets during the COVID-19 pandemic by using a sample consisting of global, US, European, and Asian IEIs, and daily data for the period starting from 01 May 2018 to 30 April 2021. During the COVID-19 period, we find that IEIs exhibit significant excess returns on a nominal and risk-adjusted basis. We find evidence to suggest that IEIs do provide resistance/hedging during extreme market downfalls, albeit only those adhering to the market-value-of-equity (MVE) approach for Shariah screening. As a caution to investors, the hedging benefit associated with IEIs is observed only when there is a big swing in the market.

Systemic risk, Islamic banks, and the COVID-19 pandemic: An empirical investigation

While operating side-by-side with conventional banks, in a dual-banking system, the systemic risk profile of Islamic banks can be different due to their unique business model. The objective of this study is to understand the evolution of systemic risk in dual-banking systems and determine whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. This study also identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The sample includes ten countries where the Islamic banking sector is considered systemically important and covers the period from November 2015 to November 2020. The empirical results indicate a significant increase in systemic risk, in the sample countries, during the first half which is followed by a recovery in the second half of 2020. Comparative analysis shows that Islamic banks have similar systemic vulnerabilities to systematic and idiosyncratic factors during the exogenously induced real economic shock of the COVID-19. However, Islamic banks pose significantly less spillover to others relative to conventional banks while earning abnormal returns. The results are robust to the inclusion of macroeconomic factors and alternate estimation methodologies. The findings of this study provide valuable insights for the regulators of dual-banking systems.

Evaluating data-driven methods for short-term forecasts of cumulative SARS-CoV2 cases.

BACKGROUND: The WHO announced the epidemic of SARS-CoV2 as a public health emergency of international concern on 30th January 2020. To date, it has spread to more than 200 countries and has been declared a global pandemic. For appropriate preparedness, containment, and mitigation response, the stakeholders and policymakers require prior guidance on the propagation of SARS-CoV2. METHODOLOGY: This study aims to provide such guidance by forecasting the cumulative COVID-19 cases up to 4 weeks ahead for 187 countries, using four data-driven methodologies; autoregressive integrated moving average (ARIMA), exponential smoothing model (ETS), and random walk forecasts (RWF) with and without drift. For these forecasts, we evaluate the accuracy and systematic errors using the Mean Absolute Percentage Error (MAPE) and Mean Absolute Error (MAE), respectively. FINDINGS: The results show that the ARIMA and ETS methods outperform the other two forecasting methods. Additionally, using these forecasts, we generate heat maps to provide a pictorial representation of the countries at risk of having an increase in the cases in the coming 4 weeks of February 2021. CONCLUSION: Due to limited data availability during the ongoing pandemic, less data-hungry short-term forecasting models, like ARIMA and ETS, can help in anticipating the future outbreaks of SARS-CoV2.

Systemic risk: The impact of COVID-19.

Banking sectors across the globe are under immense stress due to the evolving COVID-19 situation and policy responses thereto. This study investigates how COVID-19 impacted the systemic risk in the banking sectors of eight of the most COVID-19 affected countries. We find a significant increase in systemic risk among the sample countries initially, while stagnancy (at an elevated level) is observed during April 2020 except for China, which is showing some recovery. By using spillover measures, we also identify systemically important institutions. The findings of this study testify to the benefits of policy responses in containing systemic risk.