Exploring portfolio diversification opportunities in Islamic capital markets through bitcoin: evidence from MGARCH-DCC and Wavelet approaches

Siok Jin Lim and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Bitcoin is a form of digital currency that is circulating without the backing of any central bank and monitoring authority. Therefore, sceptics regularly question the status of Bitcoin as a legal tender. Nevertheless, due to increasing popularity and importance of Bitcoin, practitioners and researchers have recently started to assess Bitcoin from the perspective of business, economics and finance. This paper explores possibilities of using Bitcoin as a portfolio optimisation strategy for Islamic fund managers. We use three recent and appropriate methodologies: M-GARCH-DCC, Continuous Wavelet Transforms (CWT), and Maximum Overlap Discrete Wavelet Transform (MODWT). The results significantly tend to indicate that Bitcoin and Shari’ah stock indices are lowly and negatively correlated, suggesting that Islamic stock investors can benefit from diversification with Bitcoin and that the fundamentals of such crypto-currencies can be further investigated for the benefit of Islamic capital markets.

Keywords: Islamic stocks; Bitcoin; portfolio diversification; MGARCH-DCC; Wavelets (search for similar items in EconPapers)
JEL-codes: C58 E44 G15 (search for similar items in EconPapers)
Date: 2017-06-15
New Economics Papers: this item is included in nep-mac and nep-pay
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Citations: View citations in EconPapers (7)

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