Empirical analysis of the Islamic finance investor sensitivity to commodity price fluctuations

Since the 1990s, there have been major developments in both theory and practice of Islamic capital markets. Investors turn to alternative investment vehicles as a result of increased risk variety encountered by capital market investments as well as globalization and financial deregulation. Islamic indices are also attractive to conventional investors because, as a result of Islamic monitoring standards, they are less vulnerable to systematic risk sources. Commodity prices, in addition to other macroeconomic factors, are particularly significant for Islamic stock indexes since they support the real sector's operations particularly well and Islamic finance is a financial system built on the profit-loss sharing concept. commodities markets allow investors to profit more from the commodity markets that have an adverse price correlation with bonds and equities. The study aims to obtain appropriate portfolio diversification for each commodity and Islamic indices by using nonlinear and variance causality tests between Islamic indices and commodity prices. The data employed in this paper are daily time data and the sample periods range from 29.12.2009-28.10.2019 with 2557 daily observations. It has been concluded that according to the causality results, Islamic Indices will provide benefits in portfolio diversification, and the opportunity to diversify with energy and other Islamic indices and SGR, SYBN, and WHT (Model 14,15,16) data, However, there is no combination for all Islamic indices model (Model 1,2,3,4,5,6) and precious metal group models (Model 17, 18,19,20,21). Precious metal model, the results indicate that precious metals are not effective diversification tools, especially on variance causality