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Relationship between regional Shariah stock markets: The cointegration and causality

Author

Listed:
  • Yildirim, Ramazan
  • Masih, Mansur

Abstract

This paper investigates the relative importance of the global and regional markets affecting Asian financial market, the cross-market transmission mechanism between the stock markets, and the Asian market responses to the global financial crises in 2008. It’s objective is to answer whether there is a cointegration among the selected 5 regional stock markets – Asia, USA, Europe, BRIC and Arabian; especially their Shariah Indices. In case a cointegration exist, which of the 5 financial markets are the most leader (exogenous) or most follower (endogenous) and whether specifically the Asian market is influenced by this cointegration. Lastly this paper will try to emphasize the implications to the Asian Islamic investors. (e.g. Portfolio Management, Strategic Investment Management). This paper applies the eight steps of time series techniques based on the 5 years daily data, from 04/2008 to 09/2013. Time series econometrics has been selected, since is better than regression approach, because it tested long term theoretical relationship between the variables rather than making any early assumption of such relationship. Empirical results show a long-term equilibrium relationship (co-integration) between the selected 5 Shariah indices. It shows also that the US-, European and the BRIC Sharia Indices are the leading markets compared to the Asian and Arabian Shariah Indices. The causality test show, that especially the Asian Sharia Index is strongly impacted by the other indices and less impacted by the Arabian Shariah Index.

Suggested Citation

  • Yildirim, Ramazan & Masih, Mansur, 2013. "Relationship between regional Shariah stock markets: The cointegration and causality," MPRA Paper 76281, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:76281
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    File URL: https://mpra.ub.uni-muenchen.de/76281/1/Relationship%20between%20regional%20Shariah%20Indices%20-%20the%20cointegration%20and%20causality.pdf
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    References listed on IDEAS

    as
    1. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
    2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2003. "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 51-74, Fall.
    3. Wing-Keung Wong & Aman Agarwal & Jun Du, 2005. "Financial Integration for India Stock Market, a Fractional Cointegration Approach," Departmental Working Papers wp0501, National University of Singapore, Department of Economics.
    4. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Spillover; Asian financial market; Shariah Indices; Financial crisis;

    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
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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