Impact of Global Risk Factors on the Islamic Stock Market: New Evidence from Wavelet Analysis

Abstract

The emergence of Islamic finance as an alternative financial investment area and the increasing political and economic uncertainty around the world necessitated an examination of the relationship between these two factors. This study examines the impact of four important global uncertainty and risk indicators “Global Economic Policy Uncertainty-GEPU, Geopolitical Risk Index-GPR, World Uncertainty Index-WUI, and CBOE Volatility Index-VIX” on two important Islamic stock market indices (Dow Jones Islamic Market Index and Bist Participation 100) using wavelet coherence (WTC) and asymmetric Fourier TY analyzes Quarterly data for the period March 2011–June 2023 were used in the study. The results of the analysis show that economic instability indicators impact Islamic equity market indices (both in Turkey and the world). This effect is determined as VIX, GEPU, GPR, and WUI. In addition, the fact that the GPR and WUI indices, which have an impact on conventional markets, have truly little and only a partial impact on Islamic equity markets is an important finding. The results of this study make important contributions to the literature and provide important findings for investors and policy makers.