Divergent impacts of financial factors on Islamic vs conventional stock markets: insights from advanced countries using MM-QR

Purpose This study aims to explore how financial factors affect both conventional and Islamic stock market indices of G7 countries from July 27, 2015, to February 29, 2024. Design/methodology/approach It examines local factors like CDS, exchange rates and bond yields, along with global ones such as USCDS, VIX, OVX and MSCI, using the innovative MM-QR method to identify any asymmetric effects on stock market returns during bull, bear and normal market phases. Findings The findings suggest that CDS has a more pronounced negative impact on the conventional index compared to the Islamic index. While 10-year bond yields generally have a positive influence on both indices, except during bullish phases in Islamic markets. Exchange rates tend to negatively correlate with stock returns in both markets, except for a specific quarter in conventional markets. USCDS has a positive relationship with both conventional and Islamic indexes. The MSCI World Index has a significant positive effect on both markets, while VIX negatively affects the conventional market but tends to be positive in Islamic markets during bear and normal market conditions. OVX indicates that adverse news from the global oil market negatively impacts both conventional and Islamic stock markets. Originality/value Previous research has overlooked the comparative analysis, focusing solely on either Islamic or conventional equities. Therefore, the study initiates by analyzing how changes in financial factors affect Islamic equity returns within the G7 nations, with a parallel investigation into whether these effects align with those observed in conventional equity markets.