Religion vs ethics: hedge and safe haven properties of Sukuk and green bonds for stock markets pre- and during COVID-19

PurposeThis study aims to examine the hedge and safe-haven properties of the Sukuk and green bond for the stock markets pre- and during the COVID-19 pandemic period.Design/methodology/approachTo test the hedge and safe-haven characteristics of Sukuk and green bonds for stock markets, the study first uses the methodology proposed by Ratner and Chiu (2013). Next, the authors estimate the hedge ratios and hedge effectiveness of using Sukuk and green bonds in a portfolio with stock markets.FindingsStrong safe-haven features of ethical (green) bonds reveal that adding green bonds into the investment portfolios brings considerable diversification avenues for the investors who tend to take fewer risks in periods of economic stress and turbulence. The hedge ratio and hedge effectiveness estimates reveal that green bonds provide sufficient evidence of the hedge effectiveness for various international stocks.Practical implicationsThe study has significant implications for faith-based investors, ethical investors, policymakers and regulatory bodies. Religious investors can invest in Sukuk to relish low-risk and interest-free investments, whereas green investors can satisfy their socially responsible motives by investing in these investment streams. Policymakers can direct the businesses to include these diversifiers for portfolio and risk management.Originality/valueThe study provides novel insights in the testing hedge and safe-haven attributes of green bonds and Sukuk while using unique methodologies to identify multiple low-risk investors for investors following the uncertain COVID-19 pandemic.

CLIMATE FINANCE IN THE WAKE OF COVID-19: CONNECTEDNESS OF CLEAN ENERGY WITH CONVENTIONAL ENERGY AND REGIONAL STOCK MARKETS

Focusing on raising climate concerns and sustaining a clean ecosystem, the current study strives to examine the connectedness of clean energy markets with conventional energy markets and four regional stock markets of Asia, Pacific, Europe, and America for the period spanning January 1, 2004 to August 31, 2021. We employed the volatility connectedness methodology using dynamic conditional correlation (DCC-GARCH) estimates for analysis purposes. There is pronounced within class connectedness of all markets except conventional energy markets, which showed strong disconnection from the network. However, strong inter-class spillovers are reported between clean energy and regional stock markets. Time-varying analysis revealed that intense spillovers are shaped during the Global Financial Crisis, Shale Oil Crisis, and COVID-19 pandemic. Meanwhile, time-varying net connectedness estimates illuminate that world renewable energy and American stock markets are net transmitters, whereas leftover markets are net recipients of spillovers. Further analysis of sub-sample periods during GFC, SOR, and COVID-19 validate that intense spillovers are formed when markets experience unexpected financial, economic, and global health turmoil. We proposed significant implications for regional stock markets of Asia, Pacific, Europe and America to concentrate on the climate-friendly energy markets than conventional energy markets as they service the clean ecosystem motives more specifically.

Do global factors drive the interconnectedness among green, Islamic and conventional financial markets?

Purpose>This study aims to examine the connectedness among green, Islamic and conventional financial markets from December 2008 to May 2021. Moreover, the impact of global factors on the connectedness of given financial markets is also observed.Design/methodology/approach>This study first employed the time-varying parameter vector autoregressions (TVP-VAR) technique to explore the connectedness of markets. Second, This study utilized the wavelet coherence analysis to test the time-frequency impact of global factors in terms of implied volatilities of stock, oil, gold, currency and bond on the connectedness across financial markets.Findings>This study finds Islamic stocks, sustainability index and S&P500 composite index are the net transmitters, whereas Sukuk, commodity index, bond market, clean energy and green bonds are the net recipient of spillovers. Time-varying features of green, Islamic and conventional financial markets are evident in system-wide connectedness. This study further evidenced that global factors drive the connectedness of financial markets, particularly during stressful times.Practical implications>The findings of this study furnish significant implications for policymakers, regulatory authorities, investors, financial market participants and portfolio managers in terms of carefully assessing the unique characteristics offered by each financial market in terms of risk mitigation and diversifying the portfolios.Originality/value>Using a portfolio of green, Islamic and conventional financial markets, the uniqueness of this study lies in the examination of the connectedness of these markets by deploying the TVP-VAR technique. In addition, wavelet analysis offers a significant contribution in terms of global factors driving the connectedness of green, Islamic and conventional markets.

Oil Shocks and BRIC Markets: Evidence from Extreme Quantile Approach (preprint)

The present study aims to configure the extreme quantile dependence between oil shocks and BRIC markets from January 2, 1995 to July 27, 2021. Using the cross-quantilogram technique, the current study first decomposed oil shocks pertaining to demand and supply and analyzed their asymmetric impact on BRIC markets. Our findings manifest positive and persistent dependencies between oil demand shocks and BRIC markets. Meanwhile, substantial cross-quantile dependence is demonstrated among shocks in oil supply and the stock returns of Russia. The recursive cross-quantilogram analysis indicates time-varying characteristics reiterating that oil demand shocks are positively and significantly correlated with BRIC stock returns, particularly after the Global Financial Crisis and COVID-19 pandemic. However, weaker dependencies are observed in the normal market conditions in the absence of financial contagion. Finally, after controlling the impact of idiosyncratic risk shocks, our results remain robust. Our findings are of particular prominence for policymakers, investors, and financial market constituents to restructure their current policies and strategies for avoiding uncertainty in the stock returns.