Granger-causal relationship between islamic stock markets and oil prices: a case study of Malaysia

Musaeva, Gulzhan and Masih, Mansur (2018): Granger-causal relationship between islamic stock markets and oil prices: a case study of Malaysia.

Abstract

The connection between oil price fluctuations and stock markets has gained much attention in the recent decades due to the critical importance of global oil prices. This paper aims to study the Granger-causal relationship between real prices of the Islamic stock market and real oil prices – a novel study, to the best of our knowledge. Malaysia is chosen as a case study. Using the standard time series techniques, we have discovered that Islamic stock prices and oil prices are both more or less independently leading; that is, neither of them drives the other to a large extent. These results are explained in part by Malaysia’s prevaling oil price subsidies. We thus conclude that, in all similar scenarios, investors should not use real oil price changes as a predictor of subsequent changes in the Islamic stock market, seeing that the latter seems to be strongly resilient to oil price fluctuations. The policymakers, in turn, could experiment by monitoring Islamic stock prices more closely to gauge the performance of the economy, in order to take any further action (if necessary) for affecting economic variables (through either stabilization or supply-side policies).

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic stock market, oil prices, Granger causality, 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; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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