Volatility Connectedness and Portfolio Optimization Across Islamic Finance, Sustainable, and Technological Innovation Markets: Evidence From Multiple Global Turbulences

ABSTRACT This study investigates volatility spillovers and minimum‐variance portfolio allocation among Islamic finance, sustainable, and technological innovation markets across four major global turbulences (COVID‐19 pandemic, Russia–Ukraine conflict, 2023 banking crisis, and 2025 US policy shifts) from July 07, 2021, to April 17, 2025. The study employs the Diebold‐Yilmaz and DCC‐GARCH models. Results show that volatility connections (conditional correlations) are generally low (weakly positive) for Islamic finance market‐only and sustainable market‐only portfolios, moderate (moderately or strongly positive) for technological innovation market‐only and Islamic finance market‐sustainable market portfolios, and low (strongly positive) for Islamic finance/sustainable market‐technological innovation market portfolios. The Total Connectedness Index is 65.4%, with Islamic finance and sustainable markets contributing the highest to overall spillovers. Moreover, Islamic equities and sustainable markets (technological innovation markets and Sukuk‐based instruments) generally operate as net volatility transmitters (receivers). Additionally, relatively larger weights are allocated to Islamic finance markets, particularly Sukuk‐based instruments (the allocations made to Islamic equity instruments are comparatively lower), while relatively smaller allocations are made to sustainable/technological innovation markets, in Islamic finance market‐sustainable/technological innovation market portfolios. Also, sustainable markets (technological innovation markets) receive relatively larger (smaller) weights in sustainable market‐technological innovation market portfolios. Generally, the COVID‐19 pandemic, 2023 banking crisis, and 2025 US policy shifts were associated with decreased portfolio conditional correlations, while the Russia–Ukraine conflict coincided with increases in correlations. Given these findings, this study offers actionable recommendations for various stakeholders.