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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dow Jones Islamic Indices, EMAS, Cointegration , Malaysia
• 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; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Arruñada, Benito (2009). Specialization and Rent-Seeking in Moral Enforcement: The Case of Confession. Journal for the Scientific Study of Religion, 48(3), 443-461.

Awokuse, Titus, Aviral Chopra and David Bessler (2009). Structural Change and International Stock Market Interdependence: Evidence from Asian Emerging Markets, Economic Modelling, 26, 549-559

Bacha, Obiyathulla and Abbas Mirakhor (2013): Islamic Capital Markets, Singapore, John Wiley and Sons.

Chiang, Min-Hsien and Jo-Yu Wang (2008), Regime switching cointegration tests for the Asian Stock index futures: evidence for MSCI Taiwan, Nikkei 225, Hong Kong Hang-Seng, and SGX Straits Times indices, Applied Economics, 40, 285-293

Fraser, Patricia and Oluwatobi Oyefeso (2005), US, UK and European Stock Market Integration, Journal of Business Finance and Accounting, 32 (1-2), 161 181

Johansen, Søren (1988). Statistical Analysis of Cointegrating Vectors, Journal of Economic Dynamics and Control, 12, 231–254.

Khan, Taimur (2011) Cointegration of International Stock Markets: An Investigation of Diversification Opportunities, Undergraduate Economic Review: 8(1), article 7, 1-50.

Lagoarde-Segot, Thomas and Brian Lucey (2007). The Capital Markets of the Middle East and North Africa, Emerging Markets Finance and Trade, 43, 34–57

Narayan, Kumar and Russell Smyth (2005). Cointegration of Stock Markets between New Zealand, Australia and the G7 Economics: Searching for Co-movement under Structural Change, Australian Economic Papers, 44, 231-247.

Yang, Jian, Moosa Khan and Lucille Pointer (2003). Increasing Integration Between the United States and Other International Stock Markets? Emerging Markets Finance and Trade, 39(6), 39-53