Safe haven role of Islamic financial markets under pandemic-related uncertainty: evidence from two emerging market economies

Purpose This study aims to investigate whether Islamic financial markets act as safe havens during the pandemic. By focusing on the liquidity feature of Islamic financial markets, this paper examines the relationship between pandemic-related uncertainty and the liquidity of these markets. Design/methodology/approach This paper uses interrupted time series analysis and dynamic conditional correlation-based GARCH models to assess the safety of Islamic financial markets during COVID-19. Findings The results indicate that Islamic financial markets serve as safe havens for investors during the COVID-19 period when pandemic-related uncertainty, as proxied by volatility index, is high. Practical implications A liquidity-based approach may be more effective than a share price-based approach in understanding the shift of investors to Islamic financial markets during COVID-19 since Islamic finance is a very important alternative to uncertainty with the financial instruments it contains. In particular, Islamic finance is an important alternative to fluctuations based on interest-bearing assets and has important features such as gharar to reduce uncertainty. Originality/value This is the first study to examine the relationship between uncertainty and Islamic stock markets in emerging markets using liquidity as a variable during the pandemic.