Exploring Diversification Opportunities Across Islamic Stocks, Bitcoin, Oil and Gold in Indonesia

Recognizing the commendable performance of Indonesian Sharia stocks, this study investigates the dynamic relationships among the daily asset prices of Islamic stocks, gold, oil, and Bitcoin before and during the pandemic (January 2015 to December 2021). This study is conducted within the framework of Cointegration, Vector Autoregressive (VAR), Variance Decomposition, and Impulse Response Functions. Full-ranked cointegration is detected in the analysis, implying that VAR is stationary in level; thus, long-term integration is unlikely. VAR results are threefold. First, oil prices demonstrated a strong association with Sharia indices both before and during the pandemic. Second, gold serves as a reliable hedge during normal conditions, but fails to act as a safe haven during the pandemic. Third, Bitcoin is exogenous and functions as a diversifier to mitigate Sharia stock losses, particularly during periods of high uncertainty. However, owing to the high volatility and speculative nature of Bitcoin, short-rather than long-term investments are recommended. These results offer valuable insights, and enhance our understanding of the interrelationships and transmission effects of financial assets in Indonesia. A more precise measurement of asset integration would prove beneficial for risk management and portfolio construction of both Sharia stocks and non-compliant Sharia assets.