Integration and Comovement of Developed and Emerging Islamic Stock Markets: A Case Study of Malaysia

Naseri, Marjan and Masih, Mansur (2014): Integration and Comovement of Developed and Emerging Islamic Stock Markets: A Case Study of Malaysia.

Abstract

This paper attempts to analyse the extent of financial integration of two developed (the U.S. and Japan) and two emerging Islamic stock markets (China and India) with the Malaysian Islamic stock market in order for the Malaysian financial traders to make decision about their portfolio diversification, risk management and asset allocation. Despite the growing interest in Islamic finance, there are few empirical studies investigating integration of Islamic stock markets. As a result there is a certain gap in the literature pertaining to this area of research. By applying recent related techniques, this paper examines the correlations among these Islamic stock markets in a timevariant manner to indicate the degree of financial integration among them. It is found that Strong financial integration exists between the Chinese and Malaysian Islamic stock markets. Furthermore, the study suggests that in the long run, investors in Malaysia could gain by diversifying their portfolios in Japan and in the short run the US market is a better option to consider. Overall, the developed Islamic stock markets are better for the Malaysian financial traders rather than the emerging markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Portfolio Diversification, Dynamic Conditional Correlation (DCC), Multivariate GARCH, Islamic Stock Indices, Financial Integration, CWT, MODWT, Wavelet Coherence
• 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 > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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