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Is shariah (islamic) stock price causally related to the macroeconomic variables ? Malaysian evidence

Author

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  • Khalit, Nafsiah
  • Masih, Mansur

Abstract

This study attempts to discern the causal relationship between the macroeconomic variables and the Shariah (Islamic) stock price. The four macroeconomic variables chosen are industrial production, Malaysian ringgit vis-à-vis US dollars, money supply, and the consumer price index (CPI). This study uses the standard time series econometric techniques that apply tests of co-integration and LRSM to explain the theoretical relationship of the variables, as well as the VECM and VDC methods to explain the Granger-causal relations. The study further aims to compare its results with the findings from parallel study conducted on conventional stock market. This study found that there is a long-run theoretical co-integrating relationship among the variables being considered and that both Shariah stock price and the macroeconomic variables contain information to predict the variations in each other. However, intriguingly the findings in this study contradict the findings of the chosen conventional stock market research.

Suggested Citation

  • Khalit, Nafsiah & Masih, Mansur, 2017. "Is shariah (islamic) stock price causally related to the macroeconomic variables ? Malaysian evidence," MPRA Paper 100251, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100251
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    References listed on IDEAS

    as
    1. Masih, Mansur & De Mello, Lurion, 2009. "Do Stock Prices Play a Significant Role in Formulating Monetary Policy? A Case Study," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(2), pages 203-232.
    2. Mansor H. Ibrahim & Hassanuddeen Aziz, 2003. "Macroeconomic variables and the Malaysian equity market: A view through rolling subsamples," Journal of Economic Studies, Emerald Group Publishing, vol. 30(1), pages 6-27, January.
    3. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    4. Tarun K. Mukherjee & Atsuyuki Naka, 1995. "Dynamic Relations Between Macroeconomic Variables And The Japanese Stock Market: An Application Of A Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, June.
    5. Wongbangpo, Praphan & Sharma, Subhash C., 2002. "Stock market and macroeconomic fundamental dynamic interactions: ASEAN-5 countries," Journal of Asian Economics, Elsevier, vol. 13(1), pages 27-51.
    6. Mansor H. Ibrahim and Wan Sulaiman Wan Yusoff, 2001. "Macroeconomic Variables, Exchange Rate And Stock Price: A Malaysian Perspective," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 9(2), pages 141-164, December.
    7. Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, Summer.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Shariah (Islamic) price; macroeconomic variables; VECM; VDC; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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