IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Interest Rate, Exchange Rate, and Stock Prices of Islamic Banks: A Panel Data Analysis

Listed author(s):
  • Ayub, Aishahton
  • Masih, Mansur

Understanding the empirical relationship between the exchange rates, interest rates and stock prices are important and useful to the policy makers, professional investors and academics. Although the scholars and practitioners have studied the subject extensively, few empirical studies are available in the context of the Islamic banking stock prices. In this paper, we make an humble attempt to fill in this gap in the empirical literature of Islamic banking, in particular. We use panel cointegration and panel vector error-correction (VECM) model to examine the existence and direction of the causal relationship between exchange rate, interest rate and Islamic banking sector stock prices using monthly data over the last five years. The VECM is employed to discern the short-run and long-run Granger causality by applying the dynamic Generalized Method of Moments (dynamic GMM). For 40 Islamic banks, the empirical results tend to indicate that the Islamic bank stock prices have negative significant relationship with the exchange rates but no significant relationship with the interest rates. In addition, we found that there exists a bidirectional Granger-causal relationship between the Islamic bank stock prices and exchange rates. This finding tends to suggest that this significant relationship between the exchange rates and Islamic bank stock prices should be borne in mind by the policy makers while formulating their policies.

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: https://mpra.ub.uni-muenchen.de/58871/1/MPRA_paper_58871.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 58871.

as
in new window

Length:
Date of creation: 26 Aug 2013
Handle: RePEc:pra:mprapa:58871
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
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.:

as
in new window


  1. Solnik, Bruno, 1987. " Using Financial Prices to Test Exchange Rate Models: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 141-149, March.
  2. Liang, Chin-Chia & Lin, Jeng-Bau & Hsu, Hao-Cheng, 2013. "Reexamining the relationships between stock prices and exchange rates in ASEAN-5 using panel Granger causality approach," Economic Modelling, Elsevier, vol. 32(C), pages 560-563.
  3. Cole, Rebel A. & Moshirian, Fariborz & Wu, Qiongbing, 2008. "Bank stock returns and economic growth," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 995-1007, June.
  4. Choi, Jongmoo Jay & Elyasiani, Elyas & Kopecky, Kenneth J., 1992. "The sensitivity of bank stock returns to market, interest and exchange rate risks," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 983-1004, September.
  5. Edward J. Kane & Haluk Unal, 1988. "Change in Market Assessments of Deposit-Institution Riskiness," NBER Working Papers 2530, National Bureau of Economic Research, Inc.
  6. Kasman, Saadet & Vardar, Gülin & Tunç, Gökçe, 2011. "The impact of interest rate and exchange rate volatility on banks' stock returns and volatility: Evidence from Turkey," Economic Modelling, Elsevier, vol. 28(3), pages 1328-1334, May.
  7. Syed Tehseen JAWAID & Anwar Ul HAQ, 2012. "Effects of interest rate, exchange rate and their volatilities on stock prices: evidence from banking industry of Pakistan," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(8(573)), pages 153-166, August.
  8. Shen, Chung-Hua & Chen, Chien-Fu, 2008. "Causality between banking and currency fragilities: A dynamic panel model," Global Finance Journal, Elsevier, vol. 19(2), pages 85-101.
Full references (including those not matched with items on IDEAS)

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:pra:mprapa:58871. 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: (Joachim Winter)

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.