Journal of Islamic Business and Management

Stock Market Return and Volatility Spillovers: The Case of Selected Muslim Majority Countries

Najam us Sahar & Syed Zulfiqar Ali Shah
Published Online: June 2017

As integration is related to systemic risk and rewards in the stocks markets, it is coupled with both weak and semi-strong form of efficiency. Little evidence is found on return and volatility spillover within Muslim Country markets. This study investigates if Muslim majority countries are interconnected with each other through returns and volatility spillovers among the stock markets for the span of about twenty years from July 1996 to Feb 2016. Vector Auto-Regressive (VAR) method as applied by Diebold and Yilmaz (2009) has been used to find the static and dynamic spillover indices of nine countries with religious similarity in 80% of population and their three developed counterparts. We found overall significant spillovers; returns connectedness was 36.5% and volatility connectedness 22.4%. The study did not find any outright integration or evidence of spillover from developed markets to Muslim majority group. However, US and Japan caused returns and volatility shocks respectively. In dynamic analysis, both returns and volatility spillover showed gentle and stable increase in integration. Moreover, volatility spillover responded not only to major global financial crises, but also to Arab Spring. These findings have major implications for diversified investment in global financial market.


Return Spillover Index; Volatility Spillover Index; Religion; Culture.