Volatility Repercussion on Shariah and non-Shariah Stock Market Indices for India and Pakistan through ARCH & GARCH Techniques

Abstract

The object of this paper is to examine the volatility repercussion of Shariah and non-Shariah stock market indices of India and Pakistan stock exchanges with the help of non-parametric approaches. The motivation is to examine the risk return trade off between Islamic and conventional stock market indices considering the perspective of investors portfolios. This study measures the performance of Shariah and non-Shariah stock market indices in the context of India and Pakistan stock exchanges. Collection of the secondary source data is from the period of January 03, 2011 to December 29, 2023 respectively with daily frequency. Examining the volatility of both indices for each market is checked through different techniques including risk and return analysis, ARCH and GARCH models. The results intimate that Nifty50 (Non-Shariah) index performs better than its counterparts, i.e. Nifty 50 Shariah index in the Indian stock market, whereas KMI-30 (Shariah) index outperforms to KSE-30 (non-Shariah) index in Pakistan stock exchange. Additionally, volatility repercussion for Indian market especially for Nifty50 Shariah index is high in terms of risk return trade off but Pakistan stock exchange for KMI-30 index applies the strategy of high risk and high return than its KSE-30 (conventional) index. The study could be expanded to macroeconomic variables, other capital markets particularly for Asian markets and panel studies on the selected countries. This study has practical implications particularly to investors, regulatory bodies, financial analysts and potential researchers to make comparison for the performance of Shariah and non-Shariah stock market indices in terms of risk and return trade off.  This paper is the first ever study to assess volatility repercussion of Shariah and non-Shariah stock market indices in the context of India and Pakistan stock exchanges.