Integration and Comovement of Developed and Emerging Islamic Stock Markets: A Case Study of Malaysia

Marjan Naseri and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: This paper attempts to analyse the extent of financial integration of two developed (the U.S. and Japan) and two emerging Islamic stock markets (China and India) with the Malaysian Islamic stock market in order for the Malaysian financial traders to make decision about their portfolio diversification, risk management and asset allocation. Despite the growing interest in Islamic finance, there are few empirical studies investigating integration of Islamic stock markets. As a result there is a certain gap in the literature pertaining to this area of research. By applying recent related techniques, this paper examines the correlations among these Islamic stock markets in a timevariant manner to indicate the degree of financial integration among them. It is found that Strong financial integration exists between the Chinese and Malaysian Islamic stock markets. Furthermore, the study suggests that in the long run, investors in Malaysia could gain by diversifying their portfolios in Japan and in the short run the US market is a better option to consider. Overall, the developed Islamic stock markets are better for the Malaysian financial traders rather than the emerging markets.

Keywords: International Portfolio Diversification; Dynamic Conditional Correlation (DCC); Multivariate GARCH; Islamic Stock Indices; Financial Integration; CWT; MODWT; Wavelet Coherence (search for similar items in EconPapers)
JEL-codes: C22 C58 G11 G15 (search for similar items in EconPapers)
Date: 2014-08-22
New Economics Papers: this item is included in nep-rmg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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