| Summary: | This empirical study examines the diversification benefits of Islamic equity markets in Malaysia and Indonesia from January 2000 to December 2022. Despite extensive research, the diversification potential of Association of Southeast Asian Nations (ASEAN) Islamic equity markets in times of turmoil has not yet been sufficiently explored. With a study period of over two decades, this study therefore incorporates series of global crises. Using the Dynamic Conditional Correlation-Generalised Autoregressive Conditional Heteroskedasticity (DCC-GARCH) model, this study identifies a moderate but dynamic integration between these markets that intensifies during crises thus, affecting diversification strategies. The findings recommend that to diversify their risks, investors should try to invest in different markets and not just focus on Malaysia and Indonesia, especially when there is a global crisis. Policy makers should develop strategies to mitigate systemic risks. This study not only addresses a deficiency in the existing body of research but also provides practical insights for portfolio management in Islamic countries in the ASEAN region. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2025.
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