INVESTMENTINSIGHTS: DYNAMICINTERCONNECTEDNESSOF GLOBALISLAMICSECTORALINDICES

Abstract

This study investigates the dynamic linkages and lead-lag relationships among global Islamic sectoral indices, with a particular focus on their implications for portfolio di versification. As Islamic finance continues to grow in prominence, understanding the interconnectedness of sectoral indices becomes essential for Muslim investors seeking to optimize their portfolios while adhering to Shariah principles. Employing advanced methodologies, including Wavelet Coherence (WC) and the Diebold-Yilmaz Spillover In dex (DYSI), this research analyzes the extent and evolution of interconnectedness among the Dow Jones Islamic Sectoral Indices from 1996 to 2024. The findings reveal that Industrials is the strongest volatility transmitter, followed closely by Consumer Goods, which also exhibits a significant transmitting role. In contrast, Utilities, Telecommunica tions, and Financials act as net receivers of sectoral shocks, highlighting their relative stability within the Islamic financial ecosystem. These insights provide actionable strategies for optimal sector allocation and dynamic portfolio management, particularly in periods of heightened market uncertainty. By offering a nuanced understanding of sectoral spillovers in Islamic markets, this study contributes to the existing literature on Shari’ah-compliant investment diversification, ultimately aiding investors in making informed decisions that align with their ethical and financial objectives.

Date of Award	2025
Original language	American English
Awarding Institution	HBKU College of Islamic Studies