Do Islamic stock markets outperform conventional markets when facing cryptocurrency threats? Empirical evidence from Asian countries
Cryptocurrencies have emerged as a transformative force across various sectors of the global economy, particularly in financial markets, where they influence asset classes and market dynamics. In this context, Asia's leadership in both cryptocurrency adoption and Islamic finance provides a uniq...
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| Main Authors: | , , , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Elsevier
2025-01-01
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| Series: | Social Sciences and Humanities Open |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2590291125002001 |
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| Summary: | Cryptocurrencies have emerged as a transformative force across various sectors of the global economy, particularly in financial markets, where they influence asset classes and market dynamics. In this context, Asia's leadership in both cryptocurrency adoption and Islamic finance provides a unique opportunity to assess whether Islamic stock markets outperform their conventional counterparts amid cryptocurrency volatility. This study employs advanced econometric techniques, including panel unit root tests, Johansen-Fisher cointegration, pairwise Granger causality tests, and regression analysis, to empirically examine the influence of cryptocurrencies on the performance of Islamic and conventional stocks. Weekly data from 13 Asian countries spanning 2016–2019 are analyzed, with a focus on two distinct periods: before and after the 2017–2018 cryptocurrency crash. The findings reveal bidirectional significant causality between conventional stock returns and cryptocurrency returns. In contrast, Islamic stock returns exhibit a unidirectional influence on cryptocurrency prices, with no reciprocal effect observed across all panels. The findings indicate that during both overall and pre-crash periods, cryptocurrency returns positively affect Islamic and conventional stock markets, with Islamic indices experiencing a stronger impact. However, post-crash, both conventional and Islamic stocks suffer negative consequences from cryptocurrency fluctuations, with conventional stocks experiencing more pronounced losses, while Islamic stocks display greater resilience. This suggests that investor sentiment and risk appetite in Islamic markets differ from those in conventional markets, particularly during periods of cryptocurrency instability. Overall, our findings indicate that rising cryptocurrency returns, especially post-crash, may divert investors from stock markets across Asia, with conventional markets being more affected than Islamic markets. The study offers valuable insights for investors, policymakers, and regulators, emphasizing that conventional stock market investors face greater exposure to cryptocurrency risks. It advocates for the implementation of robust policies to mitigate these risks and recommends expanding future research to encompass other regions and incorporate additional control variables. |
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| ISSN: | 2590-2911 |