AN EMPIRICAL ANALYSIS OF ISLAMIC STOCK RETURNS IN MALAYSIA

Paper ini dipresentasikan di The Iinternational Conference on Islamic Capital Markets Products, Regulation and Practices with Relevance to Islamic Banking and Finance - Jakarta INDONESIA. Muamalat Institute - IRTI IDB

Ditulis bersama Hamdia Chapakia, Lecture & Researcher, Prince Songkla University, THAILAND

ABSTRACT

This paper seeks to investigate the dynamic relationship among Shariah index, Composite index, and three-month Treasury bill rates in Malaysia for the period of April 1999 until December 2003. It also attempts to analyze the causality among the variables in the short run as well as in the long run. We employ the standard time series analysis, which includes descriptive statistics, unit root test, cointegration, Granger causality and Vector Error Correction Model (VECM). The results in our study indicate that the Treasury bill rates (TBILL) have the highest return, followed by the Shariah index (LNSI), and the Composite index (LNCI). There exists a stable long-run equilibrium relationship between the Composite index and the Shariah index. For causality, the results indicate that only two models are significant in the short run. First, the Shariah index causes the Composite index. Second, the three-month Treasury bill rates cause the Shariah index. The results from VECM affirm that that the Composite index and the Shariah index have a bidirectional relationship both in the short run and in the long run. Meanwhile, the Treasury bill rates do not affect the Composite index and the Shariah index in the short run, but it will affect them in the long run. The result contradicts the findings of Hakim and Rashidian (2002) which indicate that in the U.S stock market, there is an absence of a stable long run relationship between DJIM and the W5000. They conclude that the indexes might be influenced entirely by independent factors. For our present study, given the diversified nature of the Composite index, the Muslim investors are not going to be worse off investing in Shariah compliant stocks as both the Shariah and the Composite indexes are influenced by similar factors.

JEL Classification: C22, G10
Keywords: Islamic Stock, Shariah Index, Composite Index, Time Series Analysis