Author(s): Mohammed Salah Chiadmi, Kaoutar Abbahaddou
This paper aims to investigate the main econometrical properties that characterize a new class of stock market indexes. We have studied the stability of Islamic finance by analyzing the main stylized facts widely known in conventional financial markets which are: heteroscedasticity and financial contagion. Two Islamic stock indexes have been the subject of this paper, namely: the Jakarta Islamic index and the S&P Sharia index. Univariate and asymmetric GARCH models with different densities are used to model conditional volatility, while Multivariate GARCH models are used to model volatility transmission. We have proved that Islamic stock indexes have shown significant volatility, especially in times of crisis. Furthermore, the volatility transmission was very important from American market to Islamic markets. Despite its specific properties especially intrinsic stability, Islamic finance operates in an interdependent global economy and in a very risky environment. Consequently, the operators of Islamic finance must certainly strengthen the preventive management of systemic risks to consolidate the stability of Islamic finance.