Impact of COVID-19 pandemic on stock markets: Conventional vs. Islamic indices using wavelet-based multi-timescales analysis

•We explore the effect of COVID-19 on the Islamic and conventional stock markets.•The pandemic creates identical volatility in both stock markets.•The markets are strongly associated and tend to highly co-move during COVID-19.•Islamic stock markets are not immune to financial crises. We empirically explore the effect of the COVID-19 pandemic on Islamic and conventional stock markets from a global perspective. We also explore the co-movement between Islamic and conventional stock markets. Two comparable pairs of conventional and Islamic stock indices – Dow Jones Index and FTSE Index are considered in this study. Employing Wavelet-based multi-timescales techniques on the daily data from 21st January to 27th November 2020, our findings indicate that the pandemic creates identical volatility in both stock markets. Our findings further suggest that both markets are strongly associated and tend to co-move highly during our sample period, rebutting the decoupling hypothesis of the Islamic stock market from the conventional market. However, the Shariah screening process fails to provide immunity to Islamic stock markets against financial crises. Our findings suggest that investors should be aware that Islamic stocks' conservative features do not present a superior investment alternative, especially in economic turmoil.