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Impact of macroeconomic factors on shariah and conventional stocks: Malaysian evidence

Aiman, Muhammad and Masih, Mansur (2018): Impact of macroeconomic factors on shariah and conventional stocks: Malaysian evidence.

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Abstract

The study is set up with two objectives. (i) To examine how the macroeconomic factors influence the performance of stock markets. (ii) To examine the relationship between the Shariah compliant stocks (Shariah stocks) performance and non-Shariah compliant stocks (conventional stocks) performance in relation to the impact of changes to macroeconomic factors. Based on the finding of the study, it is identified that there is a long run theoretical relationship between the macroeconomic factors (interest rate, inflation, crude oil price) and the stocks performance both Shariah stocks and conventional stocks. The results tend to indicate that any changes in the macroeconomic factors do have an impact on both Shariah and conventional stocks. Based on NARDL analysis, Shariah stocks and conventional stocks have both short-run and long-run symmetrical relationship. Both Shariah and conventional stocks have similar traits and the shocks to any of the macroeconomic factors have similar impact on both Shariah and conventional stocks in the context of Malaysia. Based on our Granger Causality analysis, it is identified that interest rate is the only exogenous variable while others are endogenous variables. This means that interest rate is the leader among the variables while other variables are the followers. Whereby interest rate is the best tool to shock the other variables. VDC analysis shows that causality chain from interest rate as the most exogenous followed by crude oil price, inflation rate, and lastly Shariah and conventional stocks.

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