Do implied volatilities of stock and commodity markets affect conventional & shariah indices differently? An evidence by OVX, GVZ and VIX

Safika Praveen Sheikh; Syed Ahsan Jamil; Ahmet Faruk Aysan; Mohd Atif; Mustafa Raza Rabbani; Umar Nawaz Kayani

doi:10.1016/j.heliyon.2023.e21094

Do implied volatilities of stock and commodity markets affect conventional & shariah indices differently? An evidence by OVX, GVZ and VIX

Heliyon. 2023 Oct 17;9(11):e21094. doi: 10.1016/j.heliyon.2023.e21094. eCollection 2023 Nov.

Authors

Safika Praveen Sheikh¹, Syed Ahsan Jamil², Ahmet Faruk Aysan³, Mohd Atif⁴, Mustafa Raza Rabbani⁵, Umar Nawaz Kayani⁶

Affiliations

¹ Alliance University, Bangalore, India.
² Department of Finance and Economics, College of Commerce and Business Administration. Dhofar University, Salalah, Oman.
³ Hamad Bin Khalifa University, College of Islamic Studies, Qatar Foundation, Qatar.
⁴ Department of Commerce and Business Studies, Jamia Millia Islamia, New Delhi, India.
⁵ College of Business Administration, University of Khorfakkan, Sharjah, United Arab Emirates.
⁶ College of Business, Al Ain University, Abu Dhabi, United Arab Emirates.

Abstract

The current study aims to investigate how index returns of conventional and shariah indices of the USA, Europe, and Asia are affected by changes in oil prices, gold prices, VIX, gold-VIX, and oil-VIX. In our investigation, we used the S&P 500, S&P Europe 350, S&P Pan Asia, and their relevant shariah counterparts for the USA, Europe, and Asia. To examine how the explanatory factors affect the overall distribution of the explained variables, we used OLS and quantile regression. For the time frame prior to Covid-19, we discover that all volatility indices-OVX, GVZ, and VIX-influence returns of all indices simultaneously, and that all variables-aside from the spot price of oil-have a greater impact during the bear phase according to QR findings. Further, Volatility indices have a greater impact on volatility of index returns during the Covid-19 period. This is largely because the Covid-19 outbreak had a rapid impact on economies all around the world, and the only thing that affected financial markets consistently was high volatility. This is further supported by the findings of BEKK, which demonstrate that volatility extends across all markets and originates from commodities like gold, oil, gold-VIX, and VIX. Evidence for this can be seen in the fact that during the COVID-19 period, stock prices reacted more favorably to oil price volatility than to oil spot prices, which even went negative on April 20, 2020. Because of this, market stability can be promoted by reducing volatility through the prompt dissemination of crucial information, even while governments have little direct control over the prices of significant commodities like gold and crude oil.

Keywords: Crude oil; Shariah compliant index; VIX; Volatility spillover.