Is islamic stock related to interest rate ? Malaysian evidence

Norhidayah Abu Bakar and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: This study aims to examine the dynamic relationship of Islamic stock price with interest rate and other monetary policy variables by using the standard time series approach. The main objective is to test the Islamic principle whether interest rate (or riba in Islamic term) influences the movement of Islamic stock price. Malaysia is taken as a case study. In addition, the extent of the influence of other variables namely, money supply and inflation in explaining Islamic stock return could be captured. The findings tend to suggest that Islamic stock price appears to be significantly affected by the interest rate and inflation in the long run, but insignificantly affected by broad money supply. Islamic stock price is relatively more sensitive to inflation rate, compared to other variables. The finding implies that Islamic stock is a good hedge against inflation as it tends to react positively to inflation rates

Keywords: Islamic stock; interest rate; VECM; VDC; Malaysia (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 (search for similar items in EconPapers)
Date: 2016-09-30
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