Downside Risk Connectedness and Hedging Strategies between Islamic Sectoral Stocks and Green Bonds
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Authors
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Yofhi Septian Panglipurningrum
Department of Management, Economics, and Business, Universitas Dharma AUB Surakarta, Indonesia 57135
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Tri Widianto
Department of Accounting, Economics, and Business, Universitas Dharma AUB Surakarta, Indonesia 57135
Keywords:
Islamic stocks, Green sukuk, Market stress, Hedging effectiveness, ConnectednessAbstract
Purpose - This study examines the influence of Islamic sectoral equity risk and green bond/green sukuk market volatility on hedging effectiveness, with Market Stress positioned as a conditional risk factor in the Indonesian Islamic capital market.
Design/methodology/approach - This study employed a quantitative explanatory design. Data were collected from Islamic capital market investors in Indonesia and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS.
Findings - The findings show that Islamic Basic Materials Sector Risk, Islamic Oil and Gas/Energy Sector Risk, Islamic Financials Sector Risk, Islamic Healthcare Sector Risk, and Market Stress significantly reduce Hedging Effectiveness. Market Stress also strengthens the adverse effect of Islamic sectoral equity risk on hedging performance, indicating that hedging strategies become less effective under stressed market conditions.
Research limitations/implications - Future research should expand the model by including additional Islamic stock sectors, longer time-series data, high-frequency market indicators, and cross-country comparisons across Islamic capital markets.
Practical implications - Islamic investors, asset managers, regulators, and green sukuk issuers should develop dynamic, sector-sensitive, and stress-aware hedging strategies to improve portfolio resilience during downside market conditions.
Originality/value - This study contributes to Islamic finance and sustainable investment literature by integrating Islamic sectoral downside risk, green bond/green sukuk volatility, market stress, and hedging effectiveness into a single portfolio-risk framework.
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