We assess the contagion effect of the global financial crisis (GFC) and the European debt crisis (EDC) on Islamic and conventional stock market indices of the US, GCC and Malaysia. We run the asymmetric dynamic conditional correlation GARCH specification on daily closing prices of relevant indices from 1 January 2006 through 31 December 2016. Our results show that the Malaysia Islamic stock market is exempted from the contagion effect of GFC and EDC when the shock stems from the US Islamic stock market. Investors in the US Islamic equity markets can create a safety net by reallocating some of their portfolios into Malaysia Islamic stock market, which appears to be more resilient. However, we do find a significant contagion influence between the US Islamic and GCC Islamic stock market, suggesting that the GCC Islamic stock market cannot provide an effective hedge for the US investors seeking a Shariah-compliant investment. Contagion effect generally is inconsistent and not significant for conventional stock markets of these three countries.

During the last two decades, the phenomenon of financial contagion has been investigated in numerous pieces of research. In spite of its severe implications for the stability of domestic financial systems as well as potential diversification benefits of international portfolio investment, there has yet to be universally agreed conclusion on the relevance of financial contagion. Thus, our current study has been designed to apply the meta-analysis approach to investigate the statistical significance of financial contagion based on past empirical contagion studies. Our meta-analysis concludes that financial contagion is a significant phenomenon. As implications, policy makers should establish contingent credit lines to ensure the liquidity of financial market during the turbulence time, and portfolio investors should diversify away from the potentially contagious markets. It is suggested that future contagion-based meta-analysis may include contagion studies with different methodologies, as well as meta-regression analysis to provide more insights on the sources of variability in the contagion studies.

The objective of this study is to examine the impact of the U.S. subprime crisis on the long-term and short-term dynamic relationships between selected Asia-Pacific Islamic stock markets and conventional stock markets in the region. The comovements among these stock markets are examined through cointegration tests, and vector error correction model-based Granger causality tests, for the period from February 2006 to December 2010. The study reveals that, after the debut of the U.S. subprime crisis, Asia-Pacific Islamic stock markets increasingly integrated among themselves and with their conventional counterparts. In addition, the conventional markets of the United States and Japan significantly influence the short-run fluctuations of Asia-Pacific Islamic and conventional markets.