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Is islamic stock market affected by interest rates ? Malaysia as a case study

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  • Daqane, Mohamed Qalib
  • Masih, Mansur

Abstract

This research makes an attempt to discuss the relationship between interest rate and Islamic stock market in Malaysia along with other theoretical determinants. We use vector error correction model and variance decompositions techniques including the recently developed long-run structural modeling (LRSM). Malaysia is used as a case study. The variables used in this research are monthly data of Crude oil price (OIL) , foreign exchange rates of Ringgit Malaysia- United States Dollar (MYR), Malaysian lending rate(INT) and Emas shariah index(EMASH). This research tends to indicate that in the short-term the interest rate does affect the Islamic product even though theoretically Islamic finance should not have any connection with the interest rate at all.

Suggested Citation

  • Daqane, Mohamed Qalib & Masih, Mansur, 2016. "Is islamic stock market affected by interest rates ? Malaysia as a case study," MPRA Paper 103784, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:103784
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    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Masih, Rumi & Masih, Abul M. M., 2001. "Long and short term dynamic causal transmission amongst international stock markets," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 563-587, August.
    3. 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.
    4. 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.
    5. Shakil Quayes & A. Jamal, 2008. "Does inflation affect stock prices?," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 767-769.
    6. Albaity, Mohamed Shikh, 2011. "Impact of the monetary policy instruments on Islamic stock market index return," Economics Discussion Papers 2011-26, Kiel Institute for the World Economy (IfW Kiel).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Shariah(Islamic) stock index; macrovariables; VECM; VDC;
    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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