Monetary transmissions mechanism for Islamic capital markets: evidence from Markov switching dynamic regression approach

Zaheer Anwer, Ahmed Sabit, M. Kabir Hassan and Andrea Paltrinieri

International Journal of Islamic and Middle Eastern Finance and Management, 2022, vol. 16, issue 3, 448-463

Abstract: Purpose - This study akims to investigate the effectiveness of expansionary monetary policy for Islamic capital markets by studying the impact of decrease in policy rates on seven Islamic equity indices for the period 1996–2019. The transmission mechanism may be different for sampled indices, as they are exposed to Shariah screening that discards certain business sectors and puts limit on debt in capital structure. Design/methodology/approach - This study uses Markov Switching dynamic regression approach of Hamilton (1988). Findings - The results show little effectiveness of expansionary monetary policy in both Bear and Bull states, for most of the sample indices. Originality/value - To the best of the authors’ knowledge, no study has made use of dynamic models to assess the association between monetary policy rate and Islamic index prices. Similarly, the authors found no work exploring the effectiveness of expansionary monetary policy actions in different regime for Islamic Indices. This investigation is important in unraveling whether, in the presence of limitations on selection of business activity and choice of capital structure, monetary policy can change the market sentiment, or it will be ineffective. The present study fills this gap.

Keywords: Islamic finance; Monetary policy; Markov switching; Islamic capital markets; Policy rate; C24; E52 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-05-2022-0203

DOI: 10.1108/IMEFM-05-2022-0203

Access Statistics for this article

International Journal of Islamic and Middle Eastern Finance and Management is currently edited by Prof M. Kabir Hassan

More articles in International Journal of Islamic and Middle Eastern Finance and Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().