Title: Return volatilities and contagion transmission between Islamic and conventional banks throughout the subprime crisis: evidence from the DCC-MGARCH model
Authors: Mohamed Fakhfekh; Nejib Hachicha
Addresses: Unité de recherche CODECI, Faculté des Sciences Economiques et de Gestion de Sfax, Université de Sfax, Route de l'aéroport, Km 4, 3018, Sfax, Tunisia ' Unité de recherche CODECI, Faculté des Sciences Economiques et de Gestion de Sfax, Université de Sfax, Route de l'aéroport, Km 4, 3018, Sfax, Tunisia
Abstract: The financial markets' deregulation and globalisation have highlighted the banking systems' fragility in the presence of financial crises. Indeed, both conventional and Islamic banks have been affected by the recently witnessed international financial crisis. In this context, an attempt has been undertaken throughout the present work in a bid to test whether the Islamic banking return volatilities undergone during the last financial crisis might have its explanations in the contagion effect. For this purpose, the DCC-MGARCH model has been applied to estimate the conditional dynamic correlations prevailing between Islamic and conventional banking returns. Using a test of Van Royen, the results have shown that these correlations between the returns of both bank types have increased between the quiet period and the crisis period. This finding implies that contagion has been a major source of the decline witnessed in the Islamic banks' returns.
Keywords: Islamic banks; conventional banks; financial crisis; DCC-MGARCH; return volatilities; contagion transmission; Islamic finance; subprime crisis; financial crisis.
International Journal of Managerial and Financial Accounting, 2014 Vol.6 No.2, pp.133 - 145
Available online: 29 Aug 2014 *Full-text access for editors Access for subscribers Purchase this article Comment on this article