Journal article
Return spillovers between Islamic and conventional banking rates: Evidence from emerging Islamic countries
Borsa Istanbul review, v 25(5), pp 972-998
01 Sep 2025
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
This study examines return connectedness and spillover shock effects between Islamic profit-sharing rates (PSR) and conventional deposit rates (DPR) of banking sectors across various maturities in T & uuml;rkiye and Malaysia. Overall, financing rates with various maturities in T & uuml;rkiye act as transmitters of shocks in both banking sectors. Specifically, short-term rates serve as net spillover transmitters, while long-term rates of DPR and PSR emerge as primary transmitters and receivers, respectively. Total directional connectedness analysis reveals that the degree of integration between sectors fluctuates over time, with political instability and monetary policy actions being key drivers. Although conventional deposit rates dominate their Islamic counterparts in the early part of the study period, a significant policy rate hike in 2014 shifts this balance in favour of profit-sharing rates, suggesting that the conventional banking sector has become increasingly susceptible to shocks originating from the Islamic banking sector in recent years. Moreover, T & uuml;rkiye's adoption of unconventional monetary policies has reduced integration within the banking system, thereby altering the dynamics of return spillovers, with deposit rates acting as main transmitters. We observe a relatively stable connectivity mechanism over time in Malaysia, where market risk becomes stronger as of 2020. Both short-term rates are net transmitters during most of the sample period, and medium- and longer-term tenors of the Islamic (conventional) banking sector function as net receivers (transmitters). DPR is shown to exert a substantial influence over PSR, with spillover shock effects being more pronounced for shorter tenors. While global factors strongly influence overall connectivity in T & uuml;rkiye, local factors such as exchange rates, interest rates, and credit default swaps (CDS) play a critical role in net shock transmission. DPRs are shown to be dominant factors in predicting PSRs in T & uuml;rkiye and both sectors exhibit stronger interactions at higher intervals of time.
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Details
- Title
- Return spillovers between Islamic and conventional banking rates: Evidence from emerging Islamic countries
- Creators
- Remzi Gok - Dicle UniversityShawkat Hammoudeh - Drexel University, Economics (School of Economics)Ahdi Noomen Ajmi - Manouba UniversityMehmet Balcilar - University of New Haven
- Publication Details
- Borsa Istanbul review, v 25(5), pp 972-998
- Publisher
- Elsevier
- Number of pages
- 27
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:001571592800007
- Scopus ID
- 2-s2.0-105007535333
- Other Identifier
- 991022054308204721
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- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance
- Economics