Abstract
A recent development in financial markets is the creation of
Shar¯ı‘ah compliant stock universes. Shar¯ı‘ah compliant stock universe is
featured as socially responsible investments, less levered, and more reflective of the real sector. This study is conducted to understand and document
the short-run equilibrium among important macroeconomic indicators
and Equity indexesIslamic and conventionalin the post-Shar¯ı‘ah-screening
era in Pakistan. Comparative study of linkages among stock indexes and
macroeconomic variables is of great interest to i) identify the important
macroeconomic factors; and ii) document whether Shar¯ı‘ah screening
of stocks has created any difference (in macro risk factors). We have
included eight macroeconomic variables to study integration with stocks
for 64 Months’ period (07/2011-10/2016). Evidence has been obtained by
application of correlation, unit root, OLS-regression and Granger causality
tests. Findings suggest that both markets Islamic & conventional are
integrated with selected macroeconomic indicators. However, evidence
lacks the integration of markets themselves. We identify a set of two
variables from real economy exports and workers’ remittances-linked with
both markets, while the third variable is different for Islamic (industrial
production) and conventional (Money Supply (MS)) markets. Important
monetary variables interest rate and inflation have shown an insignificant
association. Movements of Islamic index are in-line with the theory i.e.,
disassociation from interest and reflection of the real economy. Movements
of conventional index cover both real and monetary sectors.
Muhammad Hanif, Arshad Ali Bhatti. (2018) Causality among Stock Market and Macroeconomic Factors: A Comparison of Conventional and Islamic Stocks, Journal of Islamic Business and Management, Volume 8, Issue 2.
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