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Islamic versus conventional stock market and its co-movement with crude oil: a wavelet analysis


  • Kamarudin, Eka Azrin
  • Masih, Mansur


Crude oil market plays an important role in economic development and its price changes give huge impact to the financial markets. In this paper, the relationships between crude oil and stock markets are examined. This study has selected Malaysian Islamic and conventional stock markets as a case study. Financialisation of crude oil and its frequent inclusion into investment portfolios warrant an analysis of the relationship between crude oil and stock market indices at various time scales or investment horizons. Therefore, this paper applies wavelet decompositions to unveil the multi-horizon nature of co-movement and employ daily closing price data of Brent crude oil index and Malaysian Shariah and conventional stock market indices. The results mainly show an evidence of a low degree of co-movement between crude oil prices and Malaysian stock market returns for short term and medium term. However, for the long term, it shows that there is a significant co-movement for crude oil – stock market relationship. Interestingly, Malaysia Islamic stock market and conventional stock market are highly correlated and both show similar patterns for crude oil price comovements. The findings of this study are of crucial importance for the investors for exploring their diversification benefits as well as for the timing of their investment and disinvestment purposes.

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  • Kamarudin, Eka Azrin & Masih, Mansur, 2015. "Islamic versus conventional stock market and its co-movement with crude oil: a wavelet analysis," MPRA Paper 65261, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65261

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    References listed on IDEAS

    1. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
    2. Hedi Arouri, Mohamed El & Khuong Nguyen, Duc, 2010. "Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade," Energy Policy, Elsevier, vol. 38(8), pages 4528-4539, August.
    3. François Lescaroux & Valérie Mignon, 2008. "On the influence of oil prices on economic activity and other macroeconomic and financial variables ," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 32(4), pages 343-380, December.
    4. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    5. Ramaprasad Bhar & Biljana Nikolova, 2010. "Global Oil Prices, Oil Industry And Equity Returns: Russian Experience," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(2), pages 169-186, May.
    6. Miller, J. Isaac & Ratti, Ronald A., 2009. "Crude oil and stock markets: Stability, instability, and bubbles," Energy Economics, Elsevier, vol. 31(4), pages 559-568, July.
    7. Oberndorfer, Ulrich, 2009. "Energy prices, volatility, and the stock market: Evidence from the Eurozone," Energy Policy, Elsevier, vol. 37(12), pages 5787-5795, December.
    8. Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
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    More about this item


    Islamic stock markets; crude oil; wavelets;

    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
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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