The Impact of COVID-19 pandemic on Islamic and conventional financial markets: International empirical evidence

The current global COVID-19 pandemic is adversely affecting financial markets, including commodities, conventional stocks, and Islamic stocks. This paper empirically investigates the extent to which COVID-19 effects may drive interdependence in markets. We fit copulas to pairs of returns before and during the ongoing epidemic shock, analyze the observed changes in the dependence structure, and discuss asymmetries on the propagation of crisis. We also use the findings to construct portfolios possessing desirable expected behavior. We find that the dependence structure changes significantly during the global pandemic providing valuable information on how the COVID-19 crisis affects inter-dependencies. The selected portfolio, including gold and Islamic return indices, has the best performance outside the COVID-19 crisis, and slightly more performing during the bear markets validating gold’s intrinsic characteristic to be a safe haven. However, the portfolio performances, when combining the Brent with Islamic or conventional indices, have the same trend for the whole period. Our findings contribute to help investors better adjust their investment strategies.