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Exchange Rates And Stock Market Dynamics: Islamic Versus Conventional Financial Systems

Author

Listed:
  • Rim El Khoury

    (Lebanese American University, Byblos, Lebanon)

  • Muneer M. Alshater

    (The University of Jordan, Amman, Jordan)

  • Huthaifa Alqaralleh

    (Business and Finance, Mutah University, Jordan)

Abstract

This study investigates the changes and persistence in dynamic connectedness between stock market performance and exchange rate fluctuations, comparing conventional and Islamic financial systems. With an eye on a global financial landscape characterized by the integration of capital markets and the adoption of floating exchange rate regimes, it examines the effects of exchange rate variations on the dynamics of the stock market in nine different countries - the United Kingdom, Australia, Japan, Singapore, Canada, China, India, Korea, and South Africa. The study employs daily data spanning from November 2015 to July 2023 and uses a comprehensive analysis of three-step methodology, including nonparametric causality-in-quantiles tests, asymmetric slope Conditional Autoregressive Value-at-Risk (CAViaR), and Time-Varying Parameter Vector Autoregressive (TVP-VAR) Connectedness measure. Our results underline the asymmetric impact of exchange rate fluctuations on stock markets and highlights the distinctive characteristics of Islamic financial markets. Comparing Islamic and conventional stock markets in the context of exchange rate fluctuations, this study not only serves to fill a gap in the existing literature but also emphasizes the significance of currency exchange rate swings for global investors, policymakers, and practitioners trying to understand the intricacies of global financial markets.

Suggested Citation

  • Rim El Khoury & Muneer M. Alshater & Huthaifa Alqaralleh, 2024. "Exchange Rates And Stock Market Dynamics: Islamic Versus Conventional Financial Systems," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 10(3), pages 551-586, September.
    • Handle: RePEc:idn:jimfjn:v:10:y:2024:i:3f:p:551-586
    DOI: https://doi.org/10.21098/jimf.v10i3.2096
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    More about this item

    Keywords

    Exchange rates; Stock markets; Islamic finance; Nonparametric causality; Tail risk connectedness; Financial integration;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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