Table 5 below summarizes the empirical results from this section concerning the international portfolio diversification opportunities for Asian Islamic Stock Market investors. The table clearly highlights the answers to the objectives of this study in the form of whether any possible international portfolio diversification opportunity for Asian Islamic investors with other regions, by investing in which markets the benefits are realized. including either the dimension of different investment horizons of various investors makes any difference or not to the answer given above to the first objective. Furthermore, the differing investment horizons of various investors (e.g. 2-4 days, 4-8 days, etc.) are considered and an appropriate international portfolio diversification opportunity is identified based on such stock holding periods. This contribution is most probably the first of its kind for Asian Islamic investors.
Table 5: Summary of the overall study in a categorized form Objective 1: Region-based
Note: Since the results differ based on the different year, there is no unique answer; hence we use Y/N (Yes/No) to indicate this situation
Several researches (see Kumar and Mukhopadhyay (2002), Wong, Agarwal and Du (2005) support the notion that there is a correlation between the various markets globally. They
further emphasis that dramatic movements in one equity market can have a powerful impact on different market. The same applies for Islamic indices, where any volatility in major global markets is very likely to influence Islamic indices Majid, Meera and Omar (2007), Rahman and Sidek (2011), Siskawati (2010).
6 Conclusion
Understanding the linkages between different financial markets is of great importance for portfolio managers. Volatility, as measured by the standard deviation or variance of returns, is often used as a crude measure of the total risk of financial assets (Brooks, 2002), so when referring to international equity markets integration, researchers not only investigate the return causality linkages, but they also measure volatility spillover effects.
Recently, with the role of the emerging markets becoming more important, economists not only focus on developed countries, e.g. United States, the United Kingdom and Japan, but they also pay great attention to the emerging markets. For example, in the equity markets, the extent of the linkages of the emerging stock market exchanges with developed stock market exchanges has important implications for both the developing and the developed countries‟
investors. If the emerging market stock exchange is only weakly integrated with the developed market, it has the implication that there would be portfolio diversification possibilities for developed countries‟ investors through including the emerging market stocks in their portfolio as this diversification should reduce risk, and vice versa. On the contrary, if the emerging stock markets were fully integrated with the developed stock markets, there would not be any portfolio diversification benefit for either the developed and/or the emerging countries„ investors.
More recently the focus of the studies of these topic shifted to the contagion effect of Financial Crisis. For example, Andreosso-O‟Callaghan & Morales (2010) analysis show the evidence that the current global financial crisis has been affecting differently the world economic regions. In the same year, Charles, Darne and Pop (2010) discovered that during the crisis, both Islamic and conventional indexes were affected to the same degree by variance changes. However, in terms of portfolio diversification, Achsani et al (2007) in general finds that the interdependence of the Islamic stock markets tend to be asymmetric across a wide geographical area. While there are strong correlations between the Islamic stock indices of Indonesia and Malaysia, the US and Canada, and Japan and Asia Pacific, this is not exactly the case across the region.
In a nutshell, our findings suggest that Asian investors have a better portfolio diversification opportunities with the US markets followed by the European markets. BRIC markets do not offer any portfolio diversification benefits which can be explained partly by the fact that the Asian market covers partially the same countries of BRIC market, namely India and China.
Furthermore, considering the time horizon dimension, the results narrow down the portfolio diversification opportunities only to the short-term investment horizons, i.e. up to 8 days.
Excepting the very short-run, the markets are all highly correlated yielding minimal portfolio diversification benefits. As a result, Asian investors are advised to consistently re-asses their stock exposures and holding positions within a period of one year and ideally every month or two.
7 Suggestions for Future Research
Our analysis in this paper was performed on broad-market indices in order to recommend international portfolio diversification opportunities for the Asian Islamic investors.
As a result, future studies are recommended considering a sector-based analysis where sectors of the specific Islamic stock index (for e.g. Automobile, Manufacturing, Finance, etc.) is compared with the sectors of the other regions‟ Islamic stock index in order to identify portfolio diversification benefits between sectors. Such studies have great importance and value for international investors and fund managers who need to take portfolio allocation decisions that could maximize investments returns while minimizing associated risks.
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