Determinants of financial stability and risk transmission in dual financial system: Evidence from the COVID pandemic
研究了2007年至2021年伊斯兰与传统金融市场间的波动溢出和联动性，发现货币市场是关键传导渠道，新冠疫情加剧了风险传染，全球不确定性对联动性有负面影响。
Existing literature on spillovers and connectedness between Islamic and conventional financial markets overlooked the fundamental role played by money markets in volatility spillovers and risk transmission across markets. That being so, this paper aims at investigating the dynamic co-movements and volatility spillovers across Islamic and conventional financial markets in a dual financial system over the period from January 3, 2007 to June 30, 2021. To this end, the DECO-GJR-GARCH model and the volatility spillover approach were applied. Furthermore, the ARDL model was utilised to explore the key determinants of co-movements and risk transmission across Islamic and conventional financial markets. This not only allowed us to study the interconnectedness and volatility spillovers between financial sectors under different market conditions but also enabled us to highlight the key role played by the money markets. Empirical results show that markets have significant responses to any new relevant information. While both conventional stock and money market are the main transmitters of shocks to other markets, the Islamic money market is a net recipient. Furthermore, the volatility spillovers across conventional and Islamic financial markets became stronger during the COVID-19 epidemic. The study also finds that global uncertainties have a significant and negative impact on the dynamic co-movements, but not on volatility connectedness among the underlying markets. These findings have important implications for many stakeholders including portfolio managers, investors, and policymakers in terms of diversifying their portfolios and enhancement of financial stability during times of black swan events and negative shocks such as the COVID-19 pandemic.