Dynamic return and volatility connectedness between commodities and Islamic stock market indices

This study focuses on the dynamic connectedness between returns and volatilities of commodities and Islamic developed and emerging market indices using daily date from August 30, 2007 to June 30, 2020. We employed the Diebold and Yilmaz (2014) connectedness index based on the forecast error variance decomposition from vector autoregression (VAR) framework. First, we used a static analysis to calculate the total return and volatility connectedness. Second, we opted for a dynamic analysis to evaluate both the net directional and net pairwise directional connectedness for commodities and Islamic stock markets in the total period. Finally, we perform a sub-sample analysis, with networks, nodes and edges after the outbreak of COVID-19 to highlight how this earlier outbreak has changed the network structure between commodities and Islamic indices. Generally, results show that commodities indices exhibits the highest source of shocks to Islamic stock market whatever the period. Additionally, the rolling analysis of return and volatility spillover shows that the degree of connectedness varies over time, as there is a strong spillover transmission especially after the COVID-19 pandemic. Thus, Islamic stock market appears as a net recipient rather than a transmitter of spillovers.