Information Flow from COVID-19 Pandemic to Islamic and Conventional Equities: An ICEEMDAN-Induced Transfer Entropy Analysis

Abstract

With the steady growth in the data set on the COVID-19 pandemic, empirical works that employ novel and yet appropriate statistical techniques to corroborate previous findings of the pandemic and its consequences on financial markets are necessary. This paper examined the impact of COVID-19 information flow on the Islamic and conventional equities within the short-, mid-, and long-term horizons to assess possible diversification prospects in the era of the pandemic. To the studied equities markets, a novel technique based on a denoised frequency-domain entropy paradigm was applied. The operability of entrenched market dynamics in the long-term horizon of the COVID-19 pandemic period is reinforced by the results. The findings divulge diversification opportunities between Islamic and conventional equities in the short- and mid-term periods of the COVID-19 pandemic. The risks on equities from Japan or Bahrain could be diversified by equities from Jordan in the short-term, while in the intermediate-term stocks from Japan could diversify with the UAE and USA equities. The results imply that it is imperative for investors and fund managers to employ portfolio management techniques that show how to use benefits together with risk prevention and management across distinct time scales.