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The links between crude palm oil, conventional and Islamic stock markets: evidence from Malaysia based on continuous and discrete wavelet analysis

Author

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  • Razak, Razman
  • Masih, Mansur

Abstract

The palm oil industry is crucial to the Malaysian economy. It is also becoming more relevant and important globally and plays a key role in the expansion of Islamic Finance. Hence, this study aims to ascertain the relationship between crude palm oil prices (CPO) and the stock market (both conventional and Islamic). This study has selected Malaysia as a case study for its reliance on the palm oil industry as well as its position in Islamic Finance. Furthermore, the potential inclusion of the palm oil industry into investment portfolios also warrants the analysis of the co-movement between crude palm oil and stock market indices over varying investment horizons or time scales. Thus, to accomplish this, the Continuous Wavelet Transformation (CWT) and Maximum Overlap Discrete Wavelet Transformation (MODWT) methods were employed. The results tend to indicate that there exists little relation between CPO price returns and both the Conventional and Islamic stock market returns in the short and medium term. Interestingly enough, in the long term, significant co-movement between the variables start to emerge. This is a compelling finding as it provides new information for the investors to diversify their portfolio and time their investments. The result of this study is also a significant contribution to the pool of knowledge which lacks prominent literature on the link between palm oil, the conventional and Islamic stock markets.

Suggested Citation

  • Razak, Razman & Masih, Mansur, 2017. "The links between crude palm oil, conventional and Islamic stock markets: evidence from Malaysia based on continuous and discrete wavelet analysis," MPRA Paper 79717, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79717
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    References listed on IDEAS

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    Cited by:

    1. Othman, Nurhuda & Masih, Mansur, 2018. "Granger-causality between palm oil, gold and stocks (islamic and conventional): Malaysian evidence based on ARDL approach," MPRA Paper 106777, University Library of Munich, Germany.

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    More about this item

    Keywords

    crude palm oil prices; EMAS Shariah; KLCI; Malaysia; Wavelet;
    All these keywords.

    JEL classification:

    • 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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