DefinePK

Research Objective

To examine the time-varying coherence between the investor attention index, the Aruoba-Diebold-Scotti (ADS) business conditions index, and the returns on Islamic stocks and Islamic bond indices during the COVID-19 pandemic.

Methodology

The study employed bivariate and multivariate wavelet analysis on daily data from January 2, 2020, to July 27, 2020. The investor attention index was constructed using Principal Component Analysis on 23 COVID-19 related keywords from Google Trends. The ADS business condition index served as a proxy for real business conditions.

Methodology Flowchart

                        graph TD;
    A[Data Collection: Daily data Jan 2, 2020 - Jul 27, 2020] --> B[Construct Investor Attention Index using PCA on Google Trends];
    A --> C[Obtain ADS Business Condition Index];
    A --> D[Obtain Islamic Stock and Bond Index Values];
    B --> E[Apply Wavelet Analysis];
    C --> E;
    D --> E;
    E --> F[Bivariate and Multivariate Wavelet Analysis];
    F --> G[Analyze Coherence and Relationships];
    G --> H[Results and Discussion];
    H --> I[Conclusion];                    

Discussion

The findings support the Capacity Attention Theory, indicating increased investor attention during the critical COVID-19 pandemic period. The study highlights that investor attention has a significant impact on Islamic capital markets, particularly in the long run, and that investors tend to favor passive strategies and long-term return expectations during epidemic outbreaks. The results suggest that policymakers should facilitate market information access and simplify market shocks.

Key Findings

Before April 2020, there was a negative coherence between the investor attention index and the ADS index, Islamic bonds, and stock returns. After April 2020, a positive relationship emerged between the attention index and Islamic bonds. The relationship between investor attention and the ADS index showed both short-term and long-term correlations, with clearer long-term correlations. Islamic stocks exhibited a negative relationship with investor attention, while Islamic bonds acted as a safe haven, showing a positive long-term relationship with investor attention during uncertain times.

Conclusion

The study concludes that investor attention significantly influences Islamic capital markets, especially during crises like the COVID-19 pandemic. Islamic bonds demonstrated their role as safe-haven assets, while Islamic stocks showed a negative response to increased investor attention. The findings underscore the importance of considering investor attention and business conditions when analyzing Islamic financial markets.

Fact Check

1. The study used daily data from January 2, 2020, to July 27, 2020. (Confirmed)
2. The COVID-19 pandemic was officially declared a global pandemic by the WHO in March 2020. (Confirmed)
3. The study found a negative coherence between investor attention and Islamic stock returns. (Confirmed)

Mind Map