Crises and contagion in Asia Pacific — Islamic v/s conventional markets Syed Aun R. Rizvi a, ⁎, Shaista Arshad b , Nafis Alam a a Nottingham University Business School, The University of Nottingham Malaysia Campus, Malaysia b IIUM Institute of Islamic Banking and Finance, Kuala Lumpur, Malaysia article info abstract Article history: Received 20 January 2015 Accepted 12 April 2015 Available online 20 April 2015 This study attempts to investigate market co-movements in Islamic and mainstream equity markets across US and Asia Pacific. The objective is to understand the behavior of contagion across multiple crises in the last decade and a half. Taking a lead from theory, of pure and fundamen- tal contagion, we employ wavelet decomposition to unveil the multi- horizon nature of co-movement. Our findings support the popular be- lief, that the majority of the global shocks since 1996 were transmitted via excessive linkages from US to Asia Pacific, while the recent subprime crisis reveals a fundamental based contagion. In terms of the real sector grounded Islamic markets, they tend to show traces of reduced exposure in some crises owing to low leverage effect, while the less diversified portfolio nature increases vulnerability in other crises. The findings tend to provide an empirical ground for the argument of Islamic equities and their composition, as a possible buffer to financial crises. © 2015 Elsevier B.V. All rights reserved. Keywords: Contagion Islamic finance Asia pacific Wavelet 1. Introduction Numerous studies in the recent past have showed the increasing critical role of stock exchange co- movement, as an outcome of the enhanced economic globalization. The evolving nature of co-movement of stock markets across boundaries have been hypothetically and empirically examined and concluded to reflect either the level of integration or the proof of contagion. In regard to financial contagion, the proof might be seen from the evolution of co-movement temporarily across diverse markets amid crisis periods (Candelon et al., 2008; Chakrabarti and Roll, 2002; and so on). Concerning transmission channel of contagion, there are two different theoretical arguments; the pure and fundamentals-based contagion (Dornbusch et al., 2002; Kaminsky and Reinhart, 2000). While the former is Pacific-Basin Finance Journal 34 (2015) 315–326 ⁎ Corresponding author. Tel.: +60 136145752. E-mail addresses: aun@rizvis.net (S.A.R. Rizvi), shaistaarshad@gmail.com (S. Arshad), nafis.alam@nottingham.edu.my (N. Alam) http://dx.doi.org/10.1016/j.pacfin.2015.04.002 0927-538X/© 2015 Elsevier B.V. All rights reserved. Contents lists available at ScienceDirect Pacific-Basin Finance Journal journal homepage: www.elsevier.com/locate/pacfin