The links between gold, oil prices and Islamic stock markets in a regime switching environment

This paper investigates the linkages between gold, oil prices and Islamic stock market for the turbulent period 1996–2020 which covers the recent COVID-19 pandemic crisis. The paper applies standard VAR and Markov switching VAR models. Empirical results can be summarized as follows: (i) There are some significant relationships between the considered markets. (ii) The sign of the links varies significantly according to markets and regimes. (iii) There is a significant and positive link between oil and Islamic stock markets namely during turbulent periods suggesting the financialization of the crude oil market. (iv) The negative or the absence of relationships between gold market and both oil and Islamic stock markets indicate that gold can act as a hedge and safe haven during extreme market conditions. These findings have several practical implications for risk-management and portfolio diversification strategies.