Permanent and Transitory Volatility Spillovers Between Conventional and Islamic Stock Indices During the <scp>SARS</scp> ‐ <scp>CoV</scp> ‐2 Pandemic

ABSTRACT This study examines the existence and nature of volatility spillovers between conventional and Islamic stocks indices in the context of the SARS‐CoV‐2 pandemic. By augmenting the Hafner and Herwartz methodology with the integration of Fourier terms in the test equations, we identify both unidirectional and bidirectional volatility spillovers, predominantly of a permanent nature, across these indices. The results suggest that the SARS‐CoV‐2 pandemic has challenged the traditional perception of Islamic stocks as safe havens. The robustness tests, incorporating the traditional Hafner and Herwartz and frequency domain causality tests, confirm the validity of our main findings by demonstrating that volatility spillovers between Islamic and conventional stock markets are persistent across 27 out of 38 countries, with the Fourier‐augmented Hafner and Herwartz test providing superior detection of spillovers compared to traditional methods. The study has significant implications for individual investors, market professionals and policymakers, underscoring the need for caution when considering safe havens during periods of market instability.