Crude Oil and Islamic Sectoral Stocks : Asymmetric Connectedness and Investment Strategies

In this study, we examine the propagation of return-spillovers within a network comprising various Islamic sectoral stocks and the price of Brent crude oil. To achieve that, we extend the work of Antonakakis et al. (2020a), by introducing measures of asymmetric dynamic connectedness based on a time-varying vector autoregressive (TVPVAR) model. Furthermore, in the spirit of Broadstock et al. (2020), we conduct a dynamic portfolio exercise based on popular hedging techniques and the minimum connectedness portfolio approach so as to examine the one that better captures asymmetry. Our dataset is daily, spanning between April 25, 2013 and September 2, 2021. The findings reveal that, with the exception of the early stages of the COVID pandemic, negative connectedness dominates the sample period, indicating that investors in Islamic markets tend to react more to negative news. In turn, the prevalence of positive connectedness in early 2020 suggests that Islamic markets were relatively resilient to the pandemic. Finally, the minimum connectedness portfolio approach captures asymmetry effectively thereby providing significant implications for portfolio investment