Abstract
•We use the squared wavelet coherence to investigate the co-movement between sentiment and the Islamic and conventional equity returns in the US.•We uncover the time-varying nature of co-movement for both the Islamic and conventional indexes.•The Sharia rules have no influence on the connectedness between sentiment and Islamic equity returns.•Only middle cap firms are susceptible from negative innovations in investors’ sentiment.
This paper is the first attempt to investigate the co-movement between investors’ sentiment and the Islamic and conventional equity returns over diverse time-scales and frequencies in the US market. Using squared wavelet coherence methodology, we show that the time-varying nature of co-movement exists for both the Islamic and conventional indexes. Application of asymmetric causality test unveils that middle cap firms are susceptible from negative innovations in investors’ sentiment. We conclude that the Sharia rules have no influence on the connectedness between sentiment and Islamic equity returns.