Faith-based investments and the Covid-19 pandemic: Analyzing equity volatility and media coverage time-frequency relations

We perform time-frequency wavelet-based analysis to explore how the media coverage of the Covid-19 pandemic influenced the volatility of the Islamic equity indices, covering various sectors of economic activity. Our results show that the coherence between the Media Coverage Index and the moves of the Islamic stocks varies from low and medium to high levels. We attribute the intervals of low coherence to the diversification potential of Islamic equity investments during a systemic pandemic such as Covid-19. We document differences in the patterns exhibited by various indices per sector, showing their potential role for designing hedging strategies across sectors, based on stocks of companies which comply with Shariah.