A Review of Systemic Risk in Islamic Equity Markets Literature: Evidence from the Jakarta Islamic Index

Abstract

The growing integration of Islamic equity markets into the global financial system has raised important questions regarding their exposure to systemic risk, particularly in emerging markets such as Indonesia. This study provides a concise review of the literature on systemic risk in Sharia-compliant equities, with a specific focus on the Jakarta Islamic Index (JII). The objective is to synthesize existing empirical evidence and methodological approaches to better understand how systemic risk is measured and transmitted within Islamic equity markets. The review adopts a structured narrative approach, examining prior studies based on key methodologies, including volatility models (e.g., GARCH), tail risk measures (e.g., CoVaR and Value at Risk), and spillover as well as network analysis techniques. The findings indicate that while Islamic equities tend to exhibit lower leverage and reduced exposure to speculative activities due to Sharia screening principles, they remain vulnerable to systemic shocks, particularly during periods of financial distress such as global crises. Evidence also suggests that the JII is interconnected with broader financial markets and is influenced by macroeconomic factors and sectoral concentration, especially in commodity-related industries. Overall, the review highlights that Islamic equity markets may mitigate firm-specific risk but do not fully eliminate systemic risk. The study concludes that more advanced and integrative approaches are needed to capture the complexity of systemic risk in Islamic finance, and it identifies key gaps to guide future research.