Comparing the Islamic and Conventional Indices Focusing on Fractal Market Hypothesis

Authors : İlker Sakınç, Sıdıka Öznur Sakınç, Fatih Konak, Diler Türkoğlu

Pages : 219-231

Doi:https://doi.org/10.5281/zenodo.13953565

View : 32 | Download : 3

Publication Date : 2024-10-24

Article Type : Research Paper

Abstract :Being able to accurately predict the direction of price fluctuations in financial instruments and their characteristics within this framework forms the basis for scientifically explaining the functioning of financial markets. The generally accepted theory, which is based on the assumption that security price movements occur on a random walk basis and that returns are normally distributed, is the Efficient Market Hypothesis. The idea that financial instruments may be inadequate in explaining price movements has led to the proposal and testing of the Fractal Market Hypothesis as an alternative in academic circles. In this perspective, the research purpose is to reveal the existence of the Fractal Market Hypothesis in both Islamic and conventional indices. In addition, the fractal properties of the selected indices are evaluated with Trend-Adjusted Fluctuation Analysis (DFA) and Transformed Breadth Analysis (R/S). In the study, daily closing values of six conventional and six Islamic indices generally accepted in the field of international finance between the years 2014 and 2024 are used as dataset. According to the findings, great majority of the Islamic indices exhibit strong longterm dependencies and fractal characteristics. On the contrary, conventional indices exhibit short-term correlations and anti-permanent behaviors. These results illustrate that Islamic markets will provide significant advantages from risk management perspective and long-term investments, especially during f inancial crisis periods. In addition, this study provides empirical evidence supporting the applicability of FPH to Islamic finance.
Keywords : Islamic Finance, Fractal Market Hypothesis, Islamic Indices, Conventional Indices, Hurst Exponent.

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