Diversification of the Islamic stock market, Bitcoin, and Bullions in response to the Russia-Ukraine conflict and the COVID-19 outbreak

Sumaira Ashraf; António Manuel Martins de Almeida; Iram Naz; Rashid Latief

doi:10.1016/j.heliyon.2023.e19023

Diversification of the Islamic stock market, Bitcoin, and Bullions in response to the Russia-Ukraine conflict and the COVID-19 outbreak

Heliyon. 2023 Aug 7;9(8):e19023. doi: 10.1016/j.heliyon.2023.e19023. eCollection 2023 Aug.

Authors

Sumaira Ashraf^{1

2}, António Manuel Martins de Almeida³, Iram Naz⁴, Rashid Latief⁵

Affiliations

¹ Department of Economics and Management, University of Padua, Italy.
² CEFAGE Research Center, University of Évora, Portugal.
³ CITUR Research Center, University of Madeira, Portugal.
⁴ Military College of Signals, National University of Science & Technology, Pakistan.
⁵ School of Finance, Xuzhou University of Technology, China.

Abstract

This study investigates the interconnectedness of the Islamic stock market, Bullion, and Bitcoin as diversifiers for portfolios, exploring their role as hedges and safe havens. The analysis covers the period from January 2015 to December 2022, with a particular focus on the influence of the COVID-19 pandemic and the Russia-Ukraine War on the MSCI World Islamic Index, bullions (Gold, Silver, Platinum, Nickel, Palladium, and Aluminium), and Bitcoin, employing a time-varying parameter vector autoregression (TVP-VAR) model. During crisis periods, our findings reveal that the transmission and reception of shocks among these assets varied, with a heightened level of co-movement observed during the pandemic and war periods. These results emphasise the importance of considering the dynamic nature of financial assets' connectedness in asset investment decisions, particularly in times of crisis. Furthermore, the findings suggest that Bullion can serve as a hedge for both Bitcoin and the Islamic stock market. The study also explores the optimal diversification of investment portfolios and highlights the importance of adhering to Islamic principles in portfolio diversification. By integrating Islamic rules into the diversification process, investors can enhance the effectiveness and relevance of their investment strategies.

Keywords: Bitcoin; Bullion; COVID-19 pandemic; Dynamic connectedness; Financial assets; Hedging; Islamic stock market; Portfolio diversification; Russia-Ukraine war; Safe haven; TVP-VAR.