A systemic risk analysis of Islamic equity markets using vine copula and delta CoVaR modeling

•We analyze downside and upside spillover effects, systemic & tail dependence risks.•We utilize VaR, CoVaR, ΔCoVaR, c-vine CoVaR, static & TV vine copula approaches.•The investigation involves equity indices from Japan, USA, UK, DJWIF & DJWI.•Our findings could be important to portfolio...

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Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2018-09, Vol.56, p.104-127
Main Authors: Shahzad, Syed Jawad Hussain, Arreola-Hernandez, Jose, Bekiros, Stelios, Shahbaz, Muhammad, Kayani, Ghulam Mujtaba
Format: Article
Language:English
Subjects:
Conditional VaR
Copulas
Quantitative Finance
Spillovers
Systemic risk
Tail dependence
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Summary:•We analyze downside and upside spillover effects, systemic & tail dependence risks.•We utilize VaR, CoVaR, ΔCoVaR, c-vine CoVaR, static & TV vine copula approaches.•The investigation involves equity indices from Japan, USA, UK, DJWIF & DJWI.•Our findings could be important to portfolio managers, policy makers and investors.•Market agents are interested in accurately estimating downside & upside systemic risk. We model the downside and upside spillover effects, systemic and tail dependence risks of the DJ World Islamic (DJWI) and DJ World Islamic Financial (DJWIF) indices, and of Islamic equity indices from Japan, USA and the UK. We draw our empirical results and conclusions by implementing a robust modeling framework consisting of Value-at-Risk (VaR), conditional VaR (CoVaR), Delta conditional VaR (ΔCoVaR), canonical vine conditional VaR (c-vine CoVaR), and time-varying and static bivariate and vine copula models. Full sample estimations indicate larger downside spillover effects and systemic risk for the DJ Islamic Financials World and USA Islamic indices, while Islamic indices from Japan and the DJ World financials have greater exposure to upside spillover risk effects. During the financial crisis the USA and UK Islamic indices display higher downside systemic risk; and the strongest negative tail asymmetric dependence occurs between the DJ Islamic Financials World, and the Islamic indices from Japan and the DJ World financials. Implications of the results are discussed.
ISSN:1042-4431
1873-0612
DOI:10.1016/j.intfin.2018.02.013