IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Long-run relationship between Islamic stock returns and macroeconomic variables: An application of the autoregressive distributed lag model

  • M. Shabri Abd. Majid
  • Rosylin Mohd. Yusof

Purpose – The purpose of this paper is to explore the extent to which macroeconomic variables affect the Islamic stock market behavior in Malaysia in the post 1997 financial crisis period. Design/methodology/approach – The paper employs the latest estimation technique of autoregressive distributed lag (ARDL) model approach to cointegration. Findings – The results suggest that real effective exchange rate, money supply M3, treasury bill rate (TBR) and federal fund rate (FFR) seem to be suitable targets for the government to focus on, in order to stabilize the Islamic stock market and to encourage more capital flows into the market. As for the interest rates and stock returns relationship, the paper finds that when interest rates rise either domestically (TBR) or internationally (FFR), the Muslim investors will buy more Shari'ah compliant stocks; thereby escalating the Islamic stock prices. Research limitations/implications – The results of this study are limited to the post 1997 financial crisis period until the beginning of the year 2006 for a small open economy, Malaysia. Practical implications – The paper reveals that both changes in the local monetary policy variables and in the US monetary policy as measured by the changes in the FFR have a significant direct impact on the Islamic stock market behavior in Malaysia. Originality/value – The paper adopts the latest time series econometrics technique to test for cointegration, ARDL. And it is among the earliest attempts to investigate the long-run effects of the macroeconomic variables changes either domestically or internationally on the Islamic stock market.

If 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.

File URL:;jsessionid=814B0168369BCD379DCD815EB1829887?contentType=Article&contentId=1795261
Download Restriction: Cannot be freely downloaded

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Emerald Group Publishing in its journal Humanomics: The International Journal of Systems and Ethics.

Volume (Year): 25 (2009)
Issue (Month): 2 (May)
Pages: 127-141

in new window

Handle: RePEc:eme:humpps:v:25:y:2009:i:2:p:127-141
Contact details of provider: Web page:

Order Information: Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Web: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eme:humpps:v:25:y:2009:i:2:p:127-141. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.