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Exploring the relationship between the Malaysian islamic index and international islamic indices

Zada, Najeeb and Masih, Mansur (2017): Exploring the relationship between the Malaysian islamic index and international islamic indices.

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Abstract

This study explores the possible cointegrating relationship between the Malaysian Islamic index (EMAS) with other regional and international Islamic indices represented by Dow Jones Islamic Index. We selected five variables for the purpose of this study including EMAS and four Dow Jones Islamic indices: namely, Dow Jones Islamic index US, Dow Jones Islamic index Singapore, Dow Jones Islamic index Asia Pacific (excluding Japan) and Dow Jones Islamic index Japan. We asked firstly, is there a long-run relationship between EMAS and each of the other Islamic indices? Secondly, if there is a long-run relationship between EMAS and other Islamic indices, from which side the causality runs, i.e. which index is the leader and which are the followers? The standard time series techniques are used for the analysis. The findings tend to indicate a long-run relationship (i.e., cointegration) between the variables. However, contrary to the established theory, we found EMAS to be the most exogenous variable which leads even the Dow Jones Islamic US index. This finding is of particular importance for the investors looking for Shariah compliant indices, as well as for the Malaysian authorities who are striving to make the country a universal “brand name” in Islamic finance.

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