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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 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.

Suggested Citation

  • 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.
  • Handle: RePEc:eme:humpps:v:25:y:2009:i:2:p:127-141

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    References listed on IDEAS

    1. George T. Abed & Hamid R Davoodi, 2000. "Corruption, Structural Reforms, and Economic Performance in the Transition Economies," IMF Working Papers 00/132, International Monetary Fund.
    2. Chang, Ha-Joon, 2000. "The Hazard of Moral Hazard: Untangling the Asian Crisis," World Development, Elsevier, vol. 28(4), pages 775-788, April.
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    Cited by:

    1. Gazi Mainul Hassan & Hisham M. Al refai, 2012. "Can macroeconomic factors explain equity returns in the long run? The case of Jordan," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1029-1041, July.
    2. Rabia najaf, 2017. "Hedging Effectiveness of Crude Palm Oil on the performance of stock Market Malaysia," International Journal of Academic Research in Management and Business, International Journal of Academic Research in Management and Business, vol. 2(1), pages 6-15, january.
    3. Ali Umar Ahmad & Adam Abdullah & Zunaidah Sulong & Ahmad Tijjani Abdullahi, 2015. "The Review of Stock Returns and Macroeconomic Variables," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(5), pages 154-181, May.
    4. Maryatmo, Rogatianus, 2010. "Pengaruh Jangka Pendek dan Jangka Panjang Perubahan Suku Bunga dan Kurs Rupiah Terhadap Harga Saham : Studi Empiris di Indonesia (2000:1 – 2010:4)," MPRA Paper 25532, University Library of Munich, Germany.
    5. Albaity, Mohamed Shikh, 2011. "Impact of the monetary policy instruments on Islamic stock market index return," Economics Discussion Papers 2011-26, Kiel Institute for the World Economy (IfW).
    6. Mat Isa, Norshamshina & Abdullah, Azrul & Hassan, Zunairah, 2012. "Relationship between Macroeconomic Variables and Malaysia Available Shariah Indices," MPRA Paper 69397, University Library of Munich, Germany.


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