The Effect of Global Economic Policy Uncertainty on Selected Islamic Stock Market Returns

Purpose – The purpose of this study is to investigate the effects of global economic policy uncertainty (GEPU) and take into consideration the oil price of the control variable on 10 Islamic stock markets’ returns across 10 Islamic stock market indices. Design/methodology/approach – Dow Jones Islamic Market (DJIM), Saudi Arabia, Malaysia, United Arab Emirates (UAE), Kuwait, Qatar, Turkey, Indonesia, Bahrain, Pakistan—for 20 years from 25 September 2003 to 24 September 2023. This study used Markov Switching Model and Wavelet Coherence for the robustness test. The findings also showed that GEPU had significant negative effects on returns for all countries except Saudi Arabia, Kuwait, and Qatar. Findings – Overall findings show GEPU significantly impacts the returns of these selected Islamic stock markets. These findings have ramifications for investors looking for trading tactics to help fulfill their financial goals and for investors seeking to diversify their portfolios to maximize return and minimize risk. The results also inform policymakers about the current state of Islamic stock markets. Originality/value – It addresses a gap in the existing literature, provides insights with practical implications for investors and policymakers, and contributes to the broader understanding of how global economic uncertainties influence financial markets, particularly those operating under Islamic principles. Research limitations – Researchers can mitigate some limitations through robust methodological approaches, sensitivity analyses, and leveraging multiple data sources to cross-validate results.