How do Macroeconomic Changes Impact Islamic and Conventional Equity Prices? Evidence from Developed and Emerging Countries

Dewandaru, Ginanjar and Rizvi, Syed Aun and Sarkar, Kabir and Bacha, Obiyathulla and Masih, Mansur (2014): How do Macroeconomic Changes Impact Islamic and Conventional Equity Prices? Evidence from Developed and Emerging Countries.

Abstract

In theory, the price of equity is determined by the dividend yields and growth potentials of the firms. There exists established empirical proof of the impact of macroeconomic changes to the equity markets. With the advent of Islamic equities, and the recent surge of interest in them have raised the question of whether the same theoretical framework and relationship be considered for Shariah compliant equities or not. This study explores the impact of macroeconomic changes on Islamic and conventional indices for a large set of 37 countries, classifying them according to developed and emerging countries. The study finds a higher impact of Industrial production on the Islamic equities, while the interest rate and money supply have a lesser impact as compared to the impact on conventional counterparts. This lends support to the argument that Shariah screening methodology provides a set of Islamic equities which are more founded on the real sector of the economy. In addition the adjustment process during the crisis is faster for the Islamic equities in both regions. These results provide initial empirical proof for further research on the impact of specific economic variables on the changes in Islamic equity prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic finance, Stock Market, Equity, Emerging Countries
• 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 > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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