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The lead-lag relationship among select regional islamic equity markets

al Bdiwy, Feras and Masih, Mansur (2017): The lead-lag relationship among select regional islamic equity markets.

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Abstract

This study investigates the issue of integration in regional Islamic equity markets. For this purpose, four of the Dow Jones Islamic indexes, namely USA, UK, Euro Zone, and Asia Pacific have been selected for analysis. The issue is approached from two perspectives: (i) whether these markets move together (ii) and the dynamic linkages from the lead-lag relationships. Our analysis finds one significant cointegrating relationship among the selected Islamic equity markets, with the U.K Islamic equity market being the follower and the U.S Islamic equity market being the most leading one. These findings may suggest that Islamic equity markets also have a strong long-run equilibrium relationship mostly driven by fundamental element of the economy. In addition, the strong leading role of the U.S. Islamic equity index means that the U.S. market has a strong influence over the other regional markets even within the context of Islamic finance. The global bullish financial market driven by the U.S. market, which was followed by the subprime crisis, may explain this evidence.

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