This paper investigated the volatility spillover effects between Islamic stock markets and Korean stock market using the AR-DCC-GARCH models. Bi-directional volatility transmissions between the Islamic and Korean financial markets The correlation of KOSPI-DJIM portfolio and that of KOSPI-SHX portfolio. It shows the correlation of KOSPI-DJIM portfolio has stronger linkage than that of KOSPI-SHX portfolio. the S&P 500 Sharia stock Index(SHX) acts as a better hedge asset than DJIM against the risk of stock market. Last, The hedge ratio between two Islamic stock market and Korean stock market pairs is generally low, indicating that the Korean stock risk can be effectively hedged by taking a short position in the Islamic stock markets. the pair of KOSPI-SHX relatively shows a cheaper hedging cost than that of KOSP-DJIM pair.
Keywords: Islamic market, hedge ratio, AR-DCC-GARCH model, ime-varying conditional correlations,
