Does the islamic bank deposit have an effect on equity market ? Malaysian case

The issue as to whether economic growth is largely influenced by the development of banking sector or by the financial markets still remains debatable. Both the financial institutions and financial market play a vital role in contributing to the development of the economy but, do they impact each other? This study attempts to answer one critical question: Does deposit on Islamic bank have an impact on the equity market in Malaysia? Although many literature exist on the linkages between the bank and the equity market, there is unavailability of literature relating to the impact of Islamic bank deposit on the investment in the stock market. Using standard time series techniques, it is found that the amount of total deposit in Islamic Bank would Granger-cause the Kuala Lumpur Composite Index. This shows that the deposit on Islamic Banking has influenced equity market in Malaysia. Thus, it is essential for coordination and cooperation among the regulatory bodies such as Bank Negara Malaysia, Bursa Malaysia and Securities Commission to strike a balance for both the capital market and the banking sector growth simultaneously to achieve the best outcome.