Determinants of the Islamic Stock Markets Integration

Bakri Abdul Karim, Jyiona Fam Jxiaw Linn, Zulkefly Abdul Karim


This study examines the macroeconomic determinants of Islamic stock markets integration among 10 selected Islamic stock markets. Both pooled OLS and panel data regressions are used in this study over the period spanning from 2010 to 2014. Some of Islamic stock markets are less integrated thus there is opportunity to gain from international portfolio diversification. However, there are some Islamic stock markets are strongly integrated. The results from the Pooled OLS show that all variables are insignificant explaining the Islamic stock markets integration. From the panel estimation, the study revealed that only GDP growth differential and inflation differential are significant influencing the Islamic stock markets integration. The higher dispersion of GDP and inflation rate the more integrated the Islamic stock markets. The results of this study have significant implications on international investors (potential risks and returns of international diversification) and on policy makers (formulation of financial policies and financial liberalization). 

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