Separating BRIC using Islamic stocks and crude oil: dynamic conditional correlation and volatility spillover analysis

This paper explores the dynamic conditional correlation and volatility linkage between Islamic indexes and oil for BRIC countries. Correlations between these assets increase during the global financial crisis for India and China but not for Brazil and Russia. The volatility error forecast variance of all five indexes comes from spillover but is much lower compared to volatility spillover between conventional indexes and oil. Hedging performance of Islamic indexes are superior in India and China compared to conventional indexes in emerging markets. An optimal minimum-variance portfolio without reducing expected return can be achieved by investing in lower weights of BRIC Islamic indexes and oil compared to conventional indexes. •Correlations between crude oil and Islamic stock in BRIC are not very high.•Correlation increases during global financial crisis in China and India.•Volatility spillover among Islamic stocks and crude oil in BRIC is not very high.•Islamic stocks provide better hedging performance in China and India.•China and India provide better diversification benefit.