Risk transmission from the oil market to Islamic and conventional banks in oil-exporting and oil-importing countries

This paper examines the volatility transmission from the oil market to Islamic banks' (IBs) share prices in two sets of data from oil exporters and importers. Our datasets comprise indices developed from banks' stocks of eight oil-exporting countries, including 41 IBs and 90 conventional b...

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Bibliographic Details
Published in:Energy economics 2022-11, Vol.115, p.106389, Article 106389
Main Authors: Tanin, Tauhidul Islam, Hasanov, Akram Shavkatovich, Shaiban, Mohammed Sharaf Mohsen, Brooks, Robert
Format: Article
Language:English
Subjects:
Banks stock indices
Islamic and conventional banks
Oil volatility transmission
Oil-dependent and non-oil-dependent countries
Uncertainty
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Summary:This paper examines the volatility transmission from the oil market to Islamic banks' (IBs) share prices in two sets of data from oil exporters and importers. Our datasets comprise indices developed from banks' stocks of eight oil-exporting countries, including 41 IBs and 90 conventional banks (CBs), and five oil-importing countries, with 23 IBs and 63 CBs. We employ a trivariate version of the non-diagonal GARCH model, which allows for asymmetry in the variance-covariance matrix. Rather than relying on a single window, we perform the estimations through many recursive windows. The results reveal that oil volatility has higher predictive power (in majority recursive significant subsamples) in the exporter dataset compared to the importer dataset. We also find higher significant recursive subsamples for conventional counterparts in the same country. Holistically, IBs show greater bank stability during high oil price volatility horizons, a finding beneficial for policymakers, regulators, financial markets, IBs, and other concerned stakeholders. •Oil volatility does not transmit to volatility among Islamic banks (IBs) in Turkey•Oil volatility more greatly affects oil-exporting countries and conventional banks•Kuwaiti and Nigerian IBs face the most oil volatility transmission among oil-exporting countries•Palestinian IBs encounter the most oil volatility transmission among oil-importing countries•IBs in OMN, QAT, and SAU and BGD, JOR, and PAK experience minimal oil volatility
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2022.106389