The Basel 2.5 capital regulatory framework and the COVID-19 crisis: evidence from the ethical investment market

Purpose This research aims to evaluate the accuracy of several Value-at-Risk (VaR) approaches for determining Minimum Capital Requirement (MCR) Islamic stock markets during pandemic health crisis. Design/methodology/approach evaluates performance numerous VaR models computing MCR market risk in compliance with Basel II and II.5 guidelines ten indices. Five were applied—namely RiskMetrics, Generalized Autoregressive Conditional Heteroskedasticity, denoted (GARCH), fractional integrated GARCH, (FIGARCH), SPLINE-GARCH approaches—under three innovations (normal (N), Student (St) skewed-Student (Sk-t) extreme value theory (EVT). Findings The main findings this empirical study reveal that (1) performs better most indices crisis (2) under a normal distribution provide quite poor than fat-tailed terms estimation. Research limitations/implications Since world is now undergoing third wave COVID-19 pandemic, will not be able assess fourth COVID-19. Practical implications results suggest Financial Services Board (IFSB) should enhance discipline mechanisms, while central banks national authorities harmonize their regulatory frameworks line Basel/IFSB reform agenda. Originality/value Previous studies focused on evaluating using non-Islamic indexes. However, uses indexes analyze forecasting models. Besides, they tested based traditional GARCH models, whereas authors introduce Spline developed by Engle Rangel (2008). Finally, have focus period 2007–2008 financial crisis, investigate issue quantification equity sanitary