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Do macroeconomic variables affect stock–sukuk correlation in the regional markets? evidence from the GCC countries based on DOLS and FM-OLS

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  • Abdi, Aisha Aden
  • Masih, Mansur

Abstract

It is so important for the investors, academicians and portfolio managers to know the co-movement and dynamic correlations between the Shariah compliant stock and sukuk, as well as the role they play in asset allocation and risk diversification and also, to identify the factors that affect the correlation between these assets. In the literature, the macroeconomic factors such as inflation and interest rate have great effects on the stock-sukuk correlation. In this paper, we investigate the correlation between sukuk and sharia-compliant stocks in GCC countries, with concentration on the macroeconomic factors that affect stock-sukuk co-movement. MGARCH dynamic conditional correlation (DCC) is estimated under Student-t distribution to get the required correlation and then we applied cointegration panel techniques such as DOLS and FMOLS for the estimation analysis. We found that we can reject the null hypothesis of cointegration which says there is no effect of the macroeconomic variables on the stock and sukuk correlation. The industrial production and interest rate have effects on the stock and sukuk correlation, however we found that the CPI doesn't have any effect on the stock and sukuk correlation. The policy makers should consider the correlation and volatility of the Islamic assets, and they should take into account the factors that affect the stock and sukuk correlation in GCC.

Suggested Citation

  • Abdi, Aisha Aden & Masih, Mansur, 2017. "Do macroeconomic variables affect stock–sukuk correlation in the regional markets? evidence from the GCC countries based on DOLS and FM-OLS," MPRA Paper 79753, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79753
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    References listed on IDEAS

    as
    1. Othman, Arshad Nuval & Masih, Mansur, 2015. "Do profit and loss sharing (PLS) deposits also affect PLS financing? Evidence from Malaysia based on DOLS, FMOLS and system GMM techniques," MPRA Paper 65224, University Library of Munich, Germany.
    2. Naifar, Nader, 2016. "Do global risk factors and macroeconomic conditions affect global Islamic index dynamics? A quantile regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 29-39.
    3. Aloui, Chaker & Hammoudeh, Shawkat & Hamida, Hela ben, 2015. "Global factors driving structural changes in the co-movement between sharia stocks and sukuk in the Gulf Cooperation Council countries," The North American Journal of Economics and Finance, Elsevier, vol. 31(C), pages 311-329.
    4. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    5. Godlewski, Christophe J. & Turk-Ariss, Rima & Weill, Laurent, 2013. "Sukuk vs. conventional bonds: A stock market perspective," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 745-761.
    6. Mohamed Ariff & Meysam Safari & Shamsher Mohamed, 2012. "Sukuk Securities, their Definitions, Classification and Pricing Issues," Chapters, in: Mohamed Ariff & Munawar Iqbal & Shamsher Mohamad (ed.), The Islamic Debt Market for Sukuk Securities, chapter 2, Edward Elgar Publishing.
    7. Yang, Jian & Zhou, Yinggang & Wang, Zijun, 2009. "The stock-bond correlation and macroeconomic conditions: One and a half centuries of evidence," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 670-680, April.
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    More about this item

    Keywords

    Macro-economic determinants of stock-sukuk correlation; GCC; DOLS; FM-OLS;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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