Risk transmissions between sectoral Islamic and conventional stock markets during COVID-19 pandemic: What matters more between actual COVID-19 occurrence and speculative and sentiment factors?

Being the health pandemic with the highest impact on the global financial market, the recent COVID-19 pandemic has led to significant risk transmissions across stock markets. Although an increasing number of studies have examined the effects of the pandemic on financial markets, we provide novel insights into the volatility connectedness between conventional and Islamic stock markets. First, the analysis is conducted at the sectoral level, considering nine sectors for each category. Second, a greater novelty is applied by determining if the actual COVID-19 occurrence or speculations or sentiments raised by it is responsible for the connectedness. Summarily, findings show that markets are strongly connected. In addition, the Technology and Utilities sectors of both stock market types, and the Oil and Gas conventional stocks are the net receivers of volatility shocks. On average, however, Islamic markets tend to be more immune to the pandemic than conventional markets. Finally, both causal factors considered significantly affect the connectedness measures, although the effect is heterogeneous and stronger for the speculative/sentiment indicators. These findings provide appropriate policy clues for both investors and policy makers.