Impact of the monetary policy instruments on Islamic stock market index return
AbstractPrevious studies found that Islamic stock market index in Malaysia (KLSI), does not react, or react negatively to interest rate, although one of the main criteria of Islamic finance is to avoid business and activities that yield interest because of its prohibition in Islamic laws. On the other hand, studies of Islamic stock market index in the US (DJIMI) found that there is no impact of interest rate on DJIMI. These two stock market indices have different screening criteria and different composite of securities. This study aims at investigating the monetary policy variables impact, the effect of interest rate, and the use of stock market indices as a hedge against inflation. It also examines the volatilities of monetary variables, interest rates, and inflation rate on two Islamic stock market indices. Using time series analysis such as GARCH the results are as follows. It is found that in the variance univariate models of the conventional indices that M1, M3, inflation rate, and real growth in GDP are significant in influencing KLCI volatility, while M2, M3, inflation rate and interest rate affected DJINA volatility. On the other hand, in the Islamic indices, KLSI and DJIMI variance is influenced by M2, M3, and inflation rate. In addition, in the multivariate model, DJIMI is influenced by the interest rate and the inflation rate in the mean and variance equations. In contrast, KLSI is influenced commonly in the mean and variance equations by M3, and the inflation rate. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2011-26.
Date of creation: 2011
Date of revision:
Macroeconomic volatility; GARCH; Islamic index;
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-02 (All new papers)
- NEP-CBA-2011-08-02 (Central Banking)
- NEP-MAC-2011-08-02 (Macroeconomics)
- NEP-MON-2011-08-02 (Monetary Economics)
- NEP-SEA-2011-08-02 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- FrancisX. Diebold & Kamil Yilmaz, 2009.
"Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets,"
Royal Economic Society, vol. 119(534), pages 158-171, 01.
- Francis X. Diebold & Kamil Yilmaz, 2008. "Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets," NBER Working Papers 13811, National Bureau of Economic Research, Inc.
- Francis X. Diebold & Kamil Yilmaz, 2008. "Measuring financial asset return and volatility spillovers, with application to global equity markets," Working Papers 08-16, Federal Reserve Bank of Philadelphia.
- Diebold, Francis X. & Yilmaz, Kamil, 2008. "Measuring financial asset return and volatilty spillovers, with application to global equity markets," CFS Working Paper Series 2008/26, Center for Financial Studies (CFS).
- Francis X. Diebold & Kamil Yilmaz, 2007. "Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets," PIER Working Paper Archive 07-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Diebold, Francis X. & Yilmaz, Kamil, 2007. "Measuring financial asset return and volatility spillovers, with application to global equity markets," CFS Working Paper Series 2007/02, Center for Financial Studies (CFS).
- Francis X. Diebold & Kamil Yılmaz, 2007. "Measuring Financial Asset Return and Volatility Spillovers, With Application to Global Equity Markets," KoÃ§ University-TUSIAD Economic Research Forum Working Papers 0705, Koc University-TUSIAD Economic Research Forum.
- Tom Doan, . "RATS programs to replicate Diebold and Yilmaz EJ 2009 spillover calculations," Statistical Software Components RTZ00044, Boston College Department of Economics.
- Engle, Robert F., 1982. "A general approach to lagrange multiplier model diagnostics," Journal of Econometrics, Elsevier, vol. 20(1), pages 83-104, October.
- M. Shabri Abd. Majid & Rosylin Mohd. Yusof, 2009. "Long-run relationship between Islamic stock returns and macroeconomic variables: An application of the autoregressive distributed lag model," Humanomics: The International Journal of Systems and Ethics, Emerald Group Publishing, vol. 25(2), pages 127-141, May.
- Colm Kearney & Kevin Daly, 1998. "The causes of stock market volatility in Australia," Applied Financial Economics, Taylor and Francis Journals, vol. 8(6), pages 597-605.
- Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
- 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.
- 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.
- 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 223-37, Summer.
- 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.
- Eva Liljeblom & Marianne Stenius, 1997. "Macroeconomic volatility and stock market volatility: empirical evidence on Finnish data," Applied Financial Economics, Taylor and Francis Journals, vol. 7(4), pages 419-426.
- Maysami, Ramin Cooper & Koh, Tiong Sim, 2000. "A vector error correction model of the Singapore stock market," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 79-96, February.
- Beltratti, A. & Morana, C., 2006. "Breaks and persistency: macroeconomic causes of stock market volatility," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 151-177.
- Ivo Arnold & Evert Vrugt, 2008. "Fundamental uncertainty and stock market volatility," Applied Financial Economics, Taylor and Francis Journals, vol. 18(17), pages 1425-1440.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.