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Do Islamic indices provide diversification to bitcoin? A time-varying copulas and value at risk application
Rehman, MU Asghar, N Kang, SH
Rehman, MU
Asghar, N
Kang, SH
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2020-04-08
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Abstract
© 2020 The emergence of new asset classes offers avenues to international investment community however understanding relationship between any two assets in a single portfolio is important. We investigate the risk dependence between daily Bitcoin and major Islamic equity markets spanning over from July 2010 to March 2018. We start by examining long memory properties of Bitcoin and sampled Islamic indices and report significant results. The residuals from fractionally integrated models are then used in bivariate time invariant and time varying copulas to investigate dependence structure. Among all Islamic indices, DJIUK, DJIJP and DJICA exhibit time varying dependence with Bitcoin. In addition, we apply VaR, CoVaR and ΔCoVaR as risk measure to examine spillover between Bitcoin and Islamic equity markets. VaR of Bitcoin exceeds from VaR of Islamic indices and CoVaR of both Islamic and Bitcoin exceeds their respective VaR, suggesting presence of risk spillover between each other. Our results also report asymmetry between downside and upside ΔCoVaR suggesting implications for investors with different risk preferences. Finally, the diversification benefits indicate that Islamic equity market serves as an effective hedge in a portfolio along with Bitcoin.
Citation
Rehman, M.U. , Asghar, N. and Kang, S.H. (2020) Do Islamic indices provide diversification to bitcoin? A time-varying copulas and value at risk application, Pacific Basin Finance Journal, 61 (June 2020), 101326.
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Journal article
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en
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This is an accepted manuscript of an article published by Elsevier in Pacific-Basin Finance Journal on 08/04/2020, available online: https://doi.org/10.1016/j.pacfin.2020.101326
The accepted version of the publication may differ from the final published version.
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0927-538X