Is the GCC islamic index independent of the conventional interest rates ?

Bakkali, Saad and Masih, Mansur (2017): Is the GCC islamic index independent of the conventional interest rates ?

Abstract

The paper addresses the issue of independence of the GCC Islamic index from LIBOR which is the conventional interest rate. The issue of stability and independence of Islamic financial sector from its counterpart is debatable. The standard time series techniques are used to investigate this issue. We found that the GCC Islamic index is co-integrated with both Islamic and conventional sectors. Moreover, it has been co-integrated with LIBOR which means the conventional interest rate is still a large part of Islamic markets. The effectiveness of Islamic indices on GCC Islamic index tends to have weaker role excepting the US Islamic index which is a bit stronger. Generally, the conventional sector does play a big role and that is what was expected. The size of the conventional sector and the flexibility that it has, serve the position that it has. The study shows that even conventional sector in GCC has less to do with Islamic, whereas the US is driving both the sectors. The GCC economies are linked with the US economy in many ways. Many studies approved the high connection between the stock price and oil price which is paid in US Dollar. The economic condition of US and hence the conventional LIBOR is evidenced to have a big impact on the GCC Islamic index.

• Item Type: MPRA Paper
• Language: English
• Keywords: GCC Islamic index, LIBOR, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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