Sectoral Islamic Finance and Uncertainties: The Role of Different Market Conditions

This study examines the nonlinear and asymmetric causal effects of global uncertainty on sectoral Islamic equity markets using a nonparametric causality in quantiles approach. Drawing on monthly data from January 1996 to December 2023, we analyse the sensitivity of ten Dow Jones Islamic Market sectors and the aggregate index to three key uncertainty measures: Geopolitical Risk (GPR), Economic Policy Uncertainty (EPU), and oil market volatility (OVX). Our results uncover significant cross-sectoral heterogeneity. Consumer Goods, Industrials, and Oil and Gas sectors exhibit heightened vulnerability to uncertainty shocks, particularly in extreme quantiles, while Health and Utilities display relative resilience. These findings challenge the assumption of homogeneity in Islamic finance and underscore the importance of disaggregated analysis and nonlinear methods in capturing the complex dynamics of Shariah-compliant markets. These results have important implications for policymakers, regulators, portfolio managers, and investors.