Do Sukuk and Islamic indexes act as safe refuge to conventional stock markets? Evidence from Markov-switching CAPM approach

PurposeThe objective of this paper is twofold. First, to study the safe-haven characteristic of the Islamic stock indexes and Sukuk during the crises time. Second, to evaluate this property in the last pandemic. This study employs the daily dataset from June 15, 2015, to June 15, 2020, for the most affected countries by the earlier disease.Design/methodology/approachThis study uses the Markov-switching Capital Asset Pricing Model (CAPM) approach and the basic CAPM for the main analysis and the safe haven index (SHI) recently developed by Baur and Dimpfl (2021) for the robustness test.FindingsBased on Baur and Lucey's (2010) definition, empirical findings indicate that Islamic stock indexes cannot be a refuge throughout the crisis regime for all selected conventional markets. However, Sukuk are a strong refuge in Brazilian, Russian and Malaysian markets. For the remainder countries, except Italy, the USA and Spain, the Sukuk index offers weak protection against serious conventional market downturns. Similar conclusions are obtained during the COVID-19 global crisis period. Finally, results are confirmed by using the SHI.Originality/valueTo the best of the authors’ knowledge, this paper is the first study that evaluates the safe haven effectiveness of the Islamic index and Sukuk using the SHI in the most impacted countries by the COVID-19 outbreak.