Islamic Stock Markets and Geopolitical Risk
25 Pages Posted: 20 Nov 2019
Date Written: November 9, 2019
The geopolitical risk found to be a relevant factor for investors to choose Islamic stock investment. This study focuses on the short-run and long-run asymmetric significance of geopolitical risk on Islamic stock market returns. Nonlinear Autoregressive Distributive Lag (NARDL) model has been used for the major Islamic countries i.e. Saudi Arabia, Malaysia, Turkey, and Indonesia. The short-run dynamics suggest the presence of short-run asymmetry in the case of Saudi Arabia and Indonesia. However, in the long-run, the positive and negative shock of geopolitical risk is having an asymmetric impact on the Islamic stock market return in the case of Indonesia. The Islamic stock market getting an asymmetric response to geopolitical shock can be because of multiple determinants related to the Islamic stock market and different environments of the Islamic stock market in each economy. The study recommends the Islamic investors and other participants to consider the asymmetric nature of Islamic stock market returns to minimize risk related to negative geopolitical events.
Keywords: Geopolitical risk, Islamic stock market, Islamic countries, NARDL
JEL Classification: G10, G11, G156, G18
Suggested Citation: Suggested Citation