Asymmetric Good and Bad Volatility Transmission Mechanism: Moderating Role of Global Uncertainties
Sheikh U.A. Tabash M.I. Roubaud D. Galariotis E. Guesmi K.
January 2026John Wiley and Sons Ltd
International Journal of Finance and Economics
2026#31Issue 1584 - 619 pp.
This research article represents the first attempt to quantify good and bad volatility interconnections among the top nine Islamic financial markets, which are classified based on their global share in Islamic finance banking assets by the World Economic Forum. The study employs a time- and frequency-based generalised VAR framework. Additionally, we explore the moderating effects of global financial stress, geopolitical risk, and commodity market shocks on both short-term and long-term good and bad volatility interconnections. The findings suggest that, on average, forecast error variances are more greatly influenced by bad volatility spillovers rather than good ones. In the short term, the equity markets in the UAE, Indonesia, Kuwait, and Qatar exhibit a higher propensity to transmit bad volatility shocks compared to good ones. In the long run, the financial markets in Indonesia, Malaysia, and Kuwait, both conventional and Islamic, contribute more to bad volatility spillovers than to good ones when forecasting volatility over a 10-period horizon for all other markets. Furthermore, in the short term, the financial markets in the UAE, Qatar, and Bahrain receive higher bad volatility shocks compared to good ones. However, in the long term, the financial markets in Pakistan, Indonesia, Malaysia, and Kuwait, both conventional and Islamic, are more susceptible to bad volatility spillovers. The findings also indicate that geopolitical risk has a negative moderating effect on overall, short-term, and long-term good volatility interconnections. Conversely, oil price uncertainty and financial stress have a positive moderating impact on overall, short-term, and long-term bad volatility interconnections.
financial stress , generalised VAR , geopolitical risk , good and bad volatility , Islamic financial markets , oil price volatility , spillover asymmetry measure , volatility spillovers
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Faculty of Management Sciences, University of Central Punjab, Lahore, Pakistan
College of Business, Al Ain University, Al Ain, United Arab Emirates
Montpellier Business School, University of Montpellier, Montpellier Research in Management, Montpellier, France
Gulf Financial Center, Gulf University for Science and Technology, Hawally, Kuwait
Bang College of Business, KIMEP University, Almaty, Kazakhstan
CRECC – Paris School of Business, France
Faculty of Management Sciences
College of Business
Montpellier Business School
Gulf Financial Center
Bang College of Business
CRECC – Paris School of Business
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