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Is islamic stock related to interest rate ? Malaysian evidence

Author

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  • Abu Bakar, Norhidayah
  • Masih, Mansur

Abstract

This study aims to examine the dynamic relationship of Islamic stock price with interest rate and other monetary policy variables by using the standard time series approach. The main objective is to test the Islamic principle whether interest rate (or riba in Islamic term) influences the movement of Islamic stock price. Malaysia is taken as a case study. In addition, the extent of the influence of other variables namely, money supply and inflation in explaining Islamic stock return could be captured. The findings tend to suggest that Islamic stock price appears to be significantly affected by the interest rate and inflation in the long run, but insignificantly affected by broad money supply. Islamic stock price is relatively more sensitive to inflation rate, compared to other variables. The finding implies that Islamic stock is a good hedge against inflation as it tends to react positively to inflation rates

Suggested Citation

  • Abu Bakar, Norhidayah & Masih, Mansur, 2016. "Is islamic stock related to interest rate ? Malaysian evidence," MPRA Paper 101190, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101190
    as

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    References listed on IDEAS

    as
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    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    3. Masih, Mansur & Algahtani, Ibrahim, 2008. "Estimation of Long-run Demand for Money: An Application of Long-run Structural Modelling to Saudi Arabia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 61(1), pages 81-99.
    4. Mansor H. Ibrahim & Hassanuddeen Aziz, 2003. "Macroeconomic variables and the Malaysian equity market: A view through rolling subsamples," Journal of Economic Studies, Emerald Group Publishing, vol. 30(1), pages 6-27, January.
    5. 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.
    6. Maysami, Ramin Cooper & Koh, Tiong Sim, 2000. "A vector error correction model of the Singapore stock market," International Review of Economics & Finance, Elsevier, vol. 9(1), pages 79-96, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Islamic stock; interest rate; VECM; VDC; 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

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