The Impact of Macroeconomic Factors on US Islamic and Conventional Equity

16 Pages Posted: 9 Oct 2019

Date Written: 2019

Abstract

This study explores the influence of economic fundamentals on both Islamic and conventional equity in the US stock market by applying various methods of time series techniques focusing on the period from January 1996 to September 2013. The empirical results show that the exogenous variables are industrial production (IP), interest rate (T3), and consumer production index (CPI); whereas Islamic stock index (IS), conventional stock index (CS), and money supply (M2) are endogenous variables. When IP, T3, or CPI receives a shock, it will deviate from the equilibrium and will transmit the shock to other variables whereas if IS, CS, or M2 undergoes a shock, the long-run combination will correct it through the short-run adjustment to the equilibrium. The empirical findings also reveal a higher impact of industrial production and lower impact of interest rate on Islamic equity, as compared to conventional equity. Our results are consistent with the theory that Islamic finance, due to its effective Sharīʿah screening process, is more prevalent in the real economic sector and less associated with interest-based activities.

Keywords: Islamic equity, US stock market, Macroeconomics, Industrial production

JEL Classification: Z12, G10, G15

Suggested Citation

Kantakji, Mazhar Hallak, The Impact of Macroeconomic Factors on US Islamic and Conventional Equity (2019). Journal of King Abdulaziz University: Islamic Economics, Vol. 32, No. 2, 2019, Available at SSRN: https://ssrn.com/abstract=3466270

Mazhar Hallak Kantakji (Contact Author)

Universiti Kuala Lumpur ( email )

1016, Jalan Sultan Ismail
Kuala Lumpur, 50250
Malaysia

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