Co-movement between islamic and conventional stock indices: an integrated study.

Abstract

This Paper examines the selected stock indices of both conventional and Shari'ah-compliant are in the long run (co-integrating) relation or not. This study contributes to the literature by investigating those markets which are integrated to each other in the context of conventional to conventional, conventional to Islamic and Islamic to Islamic stock markets. The thesis also answered the following research questions; Is there long-run relationship between Islamic and conventional stock market? Is there short-run relationship between Islamic and conventional stock market? Is there long-run relationship between conventional and conventional stock market? Sthere short-run relationship between conventional and conventional stock market? Is there long run relationship between Islamic and Islamic stock market? Is there short-run relationship between Islamic and Islamic stock market. The thesis highlights the conventional and Islamic stock markets of Pakistan and 6 GCC regions (UAE, Bahrain, Qatar, Oman, Saudi Arabia and Kuwait). We explore every day closing share price of various conventional and Islamic stock indices for a time of I 0 years from 2009 to 2018 from Yahoo Finance, MSCI list, and site of particular stock exchanges. Along with Descriptive Statistics and Correlation matrix, estimation techniques are applied to test the integration between conventional and Islamic stock indices. They include unit root test, co-integration test, Granger causality, Error correction model, variance decomposition and impulse response functions were also the part of this study. The results show that the stock indices of the GCC and Pakistan's conventional and Islamic stock markets are integrated in sh01i and long run. The empirical findings of this thesis have beneficial significance for economic and financial decision makers, national and international investors, investment agencies and banks, commercial benefits and stock market trends. It is also important for regulators and policy makers because they can incorporate in structuring their Shariahcompliant and conventional portfolio independently. Integration and performance are key factors which kept in mind during any international investing. The direction for future study can be the comparative study of the other region than GCC and Pakistan for conventional and Islamic stock markets domestically and internationally.