Can country risks predict Islamic stock index? Evidence from Indonesia Repository

Can country risks predict Islamic stock index? Evidence from Indonesia

MASRIZAL, 091724553006 and Raditya Sukmana, - and Muhammad Ubaidillah Al Mustofa, - and Sri Herianingrum, - (2021) Can country risks predict Islamic stock index? Evidence from Indonesia. Journal of Islamic Accounting and Business Research, 12 (7). pp. 1000-1014. ISSN 1759-0817

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Official URL: https://www.emerald.com/insight/content/doi/10.110...

Abstract

Purpose This study aims to examine the relationship between the Indonesian Islamic capital market, the country's risk and macroeconomic factors. Design/methodology/approach This study uses the Johansen cointegration test and the vector error correction model (VECM) on monthly data from January 2003 to March 2016 to examine the variables that influenced the Islamic capital market proxied by the Jakarta Islamic Index (JII). Findings The findings indicate the existence of short-term and long-term cointegrations between country risk (political, economic and financial risks), macroeconomic variables (industrial production index, inflation and oil price) and JII. In the long run, financial risk positively affects the JII, whereas economic risks and inflation are negatively related. In the short run, only inflation affect negatively the JII. Practical implications The study emphasizes the critical role of financial risk in affecting the Islamic capital market. Investors negatively respond to higher financial risk and react positively to more increased economic threats. The variable of financial risk has the highest coefficient, indicating that the investors favour a conducive financial environment in deriving JII. Originality/value This study extends the previous literature with an attempt to empirically examine the influence of Indonesia's country risk on the Islamic stock market through VECM.

Item Type:

Article

Uncontrolled Keywords:

Country risk, Vector error correction model, Islamic Capital market, Macroeconomic variables, Jakarta stock exchange Islamic index

Subjects:

H Social Sciences
H Social Sciences > HG Finance
H Social Sciences > HG Finance > HG4501-6051 Investment, capital formation, speculation > HG4551-4598 Stock exchanges

Divisions:

04. Fakultas Ekonomi dan Bisnis > S3 Ilmu Ekonomi Islam

Creators: