Pandemics and the Asia-Pacific Islamic Stocks

Abstract

In this paper, we examine the potential of the Asia-Pacific Islamic stock market to serve as a good hedge against uncertainty due to pandemics and epidemics (UPE). Relying on a new dataset for UPE, we find evidence in favour of the hedging potential of the Asia-Pacific Islamic stocks against UPE albeit with lower hedging effectiveness during the COVID-19 pandemic. Further, results show improved out-of-sample forecasts of stock returns when using the UPE predictor.