Macroeconomic determinants of islamic and conventional stocks: Malaysian evidence based on ARDL and NARDL approaches

Shahwahid, Muhammad and Masih, Mansur (2018): Macroeconomic determinants of islamic and conventional stocks: Malaysian evidence based on ARDL and NARDL approaches.

Abstract

The paper focuses on the macroeconomic determinants of Islamic and conventional stocks. Based on the findings of the study, it is evidenced that there is a long term theoretical relationship between the macroeconomic factors (interest rate, inflation, crude oil price) and the stocks’ performance both Islamic (Shariah) stocks and conventional stocks. The results tend to suggest 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 characteristics 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 evidenced that interest rate is the only exogenous variable while others are endogenous variables. This means that the interest rate is the leader among the variables while other variables are the followers. It indicates that the interest rate is the best tool to shock the other variables. VDC analysis shows that the causality chain starts from interest rate as the most exogenous followed by crude oil price, inflation rate, and lastly Shariah and conventional stocks.

• Item Type: MPRA Paper
• Language: English
• Keywords: shariah stocks, conventional stocks, macroeconomic factors, ARDL, NARDL, 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; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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