Long-run Relationship between Islamic Stock Indices and US Macroeconomic Variables

Bello Abba Ahmed, Salamatu Isah I and Umar Aliyu Chika

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this paper is to examine the long-run relationship between Islamic stock indices (Dow Jones and FTSE) and US macroeconomic variables (economic uncertainty index, federal funds rate, money supply, volatility fear index, consumer price index, Treasury bill and Brent oil price). Daily closing stock prices for the period January 2006 – December 2017 were used selected from US, Europe, Canada, Japan, Turkey, Malaysia, China India, Qatar, Kuwait, and Taiwan. Johansen test for Cointegration and Vector Error Correction Model (VECM) were employed for the analysis. The study found the existence of a long run relationship between the selected Islamic indices, the broad market index (represented by Dow Jones Industrial Average) and the set of US macroeconomic variables. Results from the VECM showed slow speed of adjustments indicating the series were highly volatile and took long time to converge to equilibrium. It is recommended that investors should be concerned with the economic policies of US as it has the tendency to affect the expected returns of Islamic Dow Jones and FTSE in the selected countries.

Keywords: Cointegration; VECM; Macroeconomic Variables; Islamic stock index; stock market (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2018-01-05, Revised 2018-07-12
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Published in Dutse Journal of Economics and Development Studies 6.1(2018): pp. 1-10

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