Do macroeconomic variables affect stock–sukuk correlation in the regional markets? evidence from the GCC countries based on DOLS and FM-OLS

Abdi, Aisha Aden and Masih, Mansur (2017): Do macroeconomic variables affect stock–sukuk correlation in the regional markets? evidence from the GCC countries based on DOLS and FM-OLS.

Abstract

It is so important for the investors, academicians and portfolio managers to know the co-movement and dynamic correlations between the Shariah compliant stock and sukuk, as well as the role they play in asset allocation and risk diversification and also, to identify the factors that affect the correlation between these assets. In the literature, the macroeconomic factors such as inflation and interest rate have great effects on the stock-sukuk correlation. In this paper, we investigate the correlation between sukuk and sharia-compliant stocks in GCC countries, with concentration on the macroeconomic factors that affect stock-sukuk co-movement. MGARCH dynamic conditional correlation (DCC) is estimated under Student-t distribution to get the required correlation and then we applied cointegration panel techniques such as DOLS and FMOLS for the estimation analysis. We found that we can reject the null hypothesis of cointegration which says there is no effect of the macroeconomic variables on the stock and sukuk correlation. The industrial production and interest rate have effects on the stock and sukuk correlation, however we found that the CPI doesn't have any effect on the stock and sukuk correlation. The policy makers should consider the correlation and volatility of the Islamic assets, and they should take into account the factors that affect the stock and sukuk correlation in GCC.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macro-economic determinants of stock-sukuk correlation, GCC, DOLS, FM-OLS
• Subjects: 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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