Title: The dynamic correlation between energy commodities and Islamic stock market: analysis and forecasting
Authors: Tarek Chebbi; Abdelkader Derbali
Faculty of Economic Sciences and Management of Sousse, University of Sousse, Sousse, Tunisia
Higher Institute of Management of Sousse, University of Sousse, Sousse, Tunisia
Abstract: Our paper connects to the literature emphasising the importance of the links between Islamic capital markets and commodities. To this end, we focus on the dynamics of the correlations between commodities and Islamic indices. Using the approach of Dynamic Conditional Correlation (DCC), this paper attempts to shed light into the dynamic relationship between two strategic commodities (crude oil and natural gas) and the QE Al Rayan Islamic index, over the period from 15 March 2011 to 25 December 2014. The empirical evidence suggests that volatilities of commodity returns are strongly correlated to those of stock index. Notably, this result highlights the financialisation of commodity markets.
Keywords: energy commodities; Islamic stock markets; correlations; DCC-GARCH; forecasting; Islamic finance; capital markets; dynamic conditional correlation; DCC; crude oil; natural gas; QE Al Rayan Islamic index; volatility; commodity returns; financialisation.
Int. J. of Trade and Global Markets, 2015 Vol.8, No.2, pp.112 - 126
Available online: 15 May 2015