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Granger-causal relationship between macroeconomic factors and the Malaysian islamic index

Author

Listed:
  • Nahavandian, Mohsen
  • Masih, Mansur

Abstract

The Granger-causal relationship between macroeconomic variables and the Shariah (Islamic) Index (EMAs) of Malaysian stock market returns is an important issue to investigate. In this paper we attempt to examine the long-term theoretical relationship and Granger-causal (or lead-lag) relationship between selected macroeconomic variables and the FTSE Bursa Malaysia EMAS Shariah Index . The standard time series techniques are used. The paper concludes and identifies a cointegrating theoretical relationship along with the identification of Granger-causality (i.e., exogeneity and endogeneity of the variables) and advises the policy makers how much the studied variables are important in the pricing of the Islamic Indexes. The findings tend to indicate that the shariah index can’t be affected by the macro variables since it leads (rather than lags) the macro variables. Implications of the findings are immense for the policy makers. Also the findings of this paper present an opportunity to further expand the research in this field as well as extend it to other Shariah Indices in the Gulf and other Islamic markets.

Suggested Citation

  • Nahavandian, Mohsen & Masih, Mansur, 2016. "Granger-causal relationship between macroeconomic factors and the Malaysian islamic index," MPRA Paper 100805, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100805
    as

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    References listed on IDEAS

    as
    1. Gulnur Muradog Lu & Kivilcim Metin & Reha Argac, 2001. "Is there a long run relationship between stock returns and monetary variables: evidence from an emerging market," Applied Financial Economics, Taylor & Francis Journals, vol. 11(6), pages 641-649.
    2. Rogalski, Richard J & Vinso, Joseph D, 1977. "Stock Returns, Money Supply and the Direction of Causality," Journal of Finance, American Finance Association, vol. 32(4), pages 1017-1030, September.
    3. Asprem, Mads, 1989. "Stock prices, asset portfolios and macroeconomic variables in ten European countries," Journal of Banking & Finance, Elsevier, vol. 13(4-5), pages 589-612, September.
    4. Bilson, Christopher M. & Brailsford, Timothy J. & Hooper, Vincent J., 2001. "Selecting macroeconomic variables as explanatory factors of emerging stock market returns," Pacific-Basin Finance Journal, Elsevier, vol. 9(4), pages 401-426, August.
    5. Boudoukh, Jacob & Richardson, Matthew, 1993. "Stock Returns and Inflation: A Long-Horizon Perspective," American Economic Review, American Economic Association, vol. 83(5), pages 1346-1355, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Granger-causality; Islamic index; macro factors; Malaysia;
    All these keywords.

    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
    • 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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