PurposeThis study aims to analyze the presence of a long-term relationship between precious metal prices, such as for gold, silver, platinum and palladium, and Islamic stock markets of 32 different countries – 21 developed and 11 developing. In this study, the long-term relationship between the precious metal prices and the Islamic stock markets of countries grouped by the Morgan Stanley Capital Index (MSCI) according to their level of development was examined. In the economies included in the study, it is necessary that the Islamic stock index be created by MSCI. It is not a constraint as a Muslim country.Design/methodology/approachThis study used the Pedroni panel cointegration analysis and full modified ordinary least square method. All analyses in this study were performed using monthly data from 2002 to 2015.FindingsAccording to the Pedroni panel cointegration analysis applied in this study, all four precious metals – gold, silver, platinum and palladium – are effective portfolio diversification tools for developed Islamic stock markets within the analyzed period. However, in developing countries, although gold and palladium are effective portfolio diversification tools, silver and platinum are not.Practical implicationsThese results provide practical implications for academicians, practitioners as portfolio managers, policymakers. These implications are related in portfolio risk management, the diversification benefits and to propose new investment tools among developed and developing Islamic markets.Social implicationsThis study is important for investors who assemble portfolios under the restriction of selecting investment tools suitable for Islamic rules. These investors are important in terms of using precious metals that they prefer as an alternative to stock markets to protect against the risks related to their suitable portfolio options. Governments, individuals and institutional investors that use capital stock according to Islamic rules in developed countries can effectively use gold, silver, platinum and palladium as hedging tools. However, this choice is limited to only gold and palladium in developing country markets. Gold continues to be an effective diversification tool in Islamic share markets, as in traditional stock markets.Originality/valueThe author would like to emphasize that this article is second to examine precious metals and Islamic stock markets in literature.
International Journal of Islamic and Middle Eastern Finance and Management – Emerald Publishing
Published: Mar 4, 2019
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