This paper empirically examines the decoupling hypothesis by assessing the asymmetric transmissions and contagion effects of oil price shocks on Islamic and conventional stock indices in major oil-importing and -exporting countries. Using the Asymmetric Dynamic Conditional Correlation GARCH (ADCC-GARCH) model, we analysed the dynamic relationships between oil price shocks and stock indices during three critical periods: the Global Financial Crisis (GFC, 2007–2009), the European Sovereign Debt Crisis (ESDC, 2010–2012), and the Oil Price Plunge (OPP, 2014–2016). Our findings indicate that oil-importing and -exporting countries mostly demonstrate insignificant asymmetric responses, suggesting that Islamic and conventional indices are not excessively affected by negative oil shocks. The contagion analysis reveals that oil price shocks predominantly exhibited contagion effects in Islamic and conventional stock indices during the GFC. However, Islamic stock indices in countries such as Japan, Korea, Saudi Arabia, the UAE, Norway, Oman, and Brazil were less affected by these shocks compared with their conventional counterparts. Notably, Islamic indices in Korea, Italy, Saudi Arabia, and Qatar during the ESDC, as well as in the USA, India, Korea, and Germany during the OPP, demonstrated strong resilience to oil price shocks, lending support to the decoupling hypothesis. Portfolio analysis further shows that incorporating Islamic indices into conventional portfolios enhances risk-adjusted returns and hedging effectiveness, with performance improving as the allocation to Islamic indices increases. These findings hold significant implications for investors, portfolio managers, policymakers, and market participants.
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