Author: Adil and colleagues.
Global financial markets have long been sensitive to external shocks, but the comparison between the oil crisis of 2014–15 and the COVID-19 pandemic reveal striking differences. This study investigates volatility spillovers and financial connectedness between conventional and Islamic equity stock markets across developed, emerging, and frontier economies. By analyzing data from 2012 to 2021 across key regions such as the Gulf Cooperation Council, South Asian Association for Regional Cooperation, BRIC nations, and the Group of Seven, the research applies advanced spillover methods to track how shocks travel through different markets.
The findings highlight that the COVID-19 pandemic created a far more severe and widespread disruption compared to the oil crisis. Islamic stock markets were found to be highly interconnected in terms of returns, while the United States stock market emerged as the leading transmitter of returns and volatility among conventional markets. Interestingly, France played a central role as a transmitter in Islamic markets, with the United States acting as a key receiver of volatility. These insights emphasize that both Islamic and conventional markets are vulnerable to global shocks, though the transmission channels may differ across financial systems and regions.
These results align closely with the United Nations Sustainable Development Goal 8: Decent Work and Economic Growth. By understanding the patterns of volatility transmission, policymakers and regulators can strengthen financial resilience and safeguard economies from future crises. For investors, the findings underscore the need for portfolio diversification and risk management strategies that account for interconnectedness across global markets. Ultimately, the study provides valuable evidence on how sustainable financial systems can be designed to withstand shocks and support long-term economic stability.
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