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Comparison Study between Islamic and Conventional Stock Market in Malaysia

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The slide is my Research Paper which is the requirement to achieve my title in Master of Economics in International Islamic University Malaysia

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Comparison Study between Islamic and Conventional Stock Market in Malaysia

  1. 1. Analysis on Comparative Studybetween Islamic andConventional Stock Marketin MalaysiaByRininta Nurrachmi
  2. 2. IntroductionLiterature ReviewModel & MethodologyThe FindingsConclusion
  3. 3. Introduction
  4. 4. 825 Shariah compliant securities, 166Islamic unit trust funds from total of597Bursa Malaysia joint forces withFTSE group in index measurementGlobal Financial CrisisFBM KLCI - 13.67%FBM Hijr - 13.77% Q1, 2008FBM Emas - 15.99%Bersih Rally 2.0 in July 2011FBM KLCI - 6.56%FBM Hijr - 6.77% August 2011FBM Emas - 7.44%Previous studies were conductedduring the global financial crisis11. To Explore theExistence ofCointegration andDirection ofCausality2. To Compare theVolatility duringthe period 2007-2012
  5. 5. LiteratureReview
  6. 6. March 1960 – Malaysian Stock MarketApril 1999 – Shariah Index KLSE26 June 2006 – Bursa Malaysia joint forceswith FTSE Group21 May 2007 – FBM Hijrah Index22 January 2007 – FBM Emas Shariah IndexOctober 2012 – FBM Small Cap ShariahIndexMalaysian Stock Market
  7. 7. 1. Tabak&Lima(2001)  Stock Market in Latin America& the US (Indices for countries stock marketbenchmark)2. Cho & Ogwang (2006)  Stock Market in Canada(TSX Composite Index vs TSX Venture CompositeIndex3. Ramona&Razvan(2009)Stock Market in Romania(BET vs RASDAQ-C)4. Albaity&Mudor (2012) DJINA (Dow JonesIndustrial Average) vs FBM KLCINo cointegration &Unidirectional SRCausalityThe Relationship in Conventional Stock MarketThe market is efficient & thereis different characteristic oflisted company
  8. 8. 1. Albaity & Ahmad (2008)  StockMarket in Malaysia (KLCI vs KLSI).Data in 1999 - 20052. Hengchao&Hamid (2011)  StockMarket in US, Japan, China,Malaysia,Indonesia. Data in 2007-20103. Chapakia&Sanrego (2007) StockMarket in Malaysia (Shariah index,Composite index, 3-months Treasury billrate. Data in 1999 - 2003There is existence cointegration& bidirectional (feedback)causalityNo cointegration1. Hakim & Rashidian (2002)  StockMarket in the US (DJIMI, the Wilshire5000, and the three-month T-Bill ).Data in 2001-20022. Beik & Wardhana (2011)  StockMarket in Indonesia, Malaysia and theUS. Data in 2006-2008The Relationship between Islamic & Conventional Stock Market
  9. 9. Volatility Level between Islamic & Conventional Stock Market1. Yusuf – Majid (2007)  Stock Market inMalaysia (RHBII vs KLCI). Data in 1992-20002. Sukmana – Kholid (2009)  StockMarket in Indonesia (JICC vs JAKISL).Data in 2001-20093. Akhtar, et al (2012)  Stock Market in 9Islamic and 37 non-Islamic countries.Data in 2007-20104. Chiadmi – Ghaiti (2012)  Standardand Poor 500 Indices. Data in 2006-2011Islamic stock market was lessvolatile compare to its counterpart1. Amanina – Safiih (2010)  Stock Marketin Malaysia (KLSI vs index of financialsector, consumer sector, the constructionsector, the trade/service sector andplantation sector). Data in 1990-20102. Ibnrubbian (2012) Stock Market in SaudiArabia. Index from Banking, Industrial,Cement, Service and Agricultural sector.Data in 2002-20083. Romli et, al (2012)  Stock Market inMalaysia (FBM Hijrah & FBM EmasShariah vs FBM KLCI) . Data in 2007-2010Islamic stock market was morevolatile compare to its counterpart
  10. 10. Theoretical FrameworkCointegration &Causality DirectionVector Autoregressive(VAR)There is presence ofcointegration &bidirectionalThere is absence ofcointegration &unidirectional SRCausalityVolatilityComparisonARCH/GARCH(1,1)Islamic Stockmarket haslower volatilityIslamic stockmarket hashigher volatility
  11. 11. ModelandMethodology
  12. 12. 𝐿𝑛(𝐶) 𝑡= 𝛼0 + 𝛼1 𝐿𝑛(𝐶) 𝑡−1 + 𝛼2 𝐿𝑛(𝐻) 𝑡−1 + 𝛼3 𝐿𝑛(𝐸) 𝑡−1 + 𝜀𝑡𝐶𝐿𝑛(𝐻) 𝑡= 𝛽0 + 𝛽1 𝐿𝑛(𝐶) 𝑡 + 𝛽2 𝐿𝑛(𝐶) 𝑡−1 + 𝛽3 𝐿𝑛(𝐻) 𝑡−1 + 𝛽2 𝐿𝑛(𝐸) 𝑡−1 + 𝜀𝑡𝐻𝐿𝑛(𝐸) 𝑡= 𝛾0 + 𝛾1 𝐿𝑛(𝐶) 𝑡 + 𝛾2 𝐿𝑛(𝐻) 𝑡 + 𝛾3 𝐿𝑛(𝐶) 𝑡−1 + 𝛾4 𝐿𝑛(𝐻) 𝑡−1 + 𝛾5 𝐿𝑛(𝐸) 𝑡−1 + 𝜀𝑡𝐸𝑳𝒏(𝑪) 𝒕= 𝜷 𝟎 + 𝜷 𝟏 𝑳𝒏(𝑯) 𝒕 + 𝜷 𝟐 𝑳𝒏(𝑬) 𝒕 + 𝜺 𝒕Time Series Data from 5 June 2007 to 28 December 2012(Daily Index , N= 1376)Islamic Stock Market  FBM Hijrah , FBM Emas SIConventional Stock Market  FBM KLCI
  13. 13. MethodologyUnitRootAugmented DickeyFuller(ADF)PhilipPerron(PP)CointegrationTestJohansen(variablemore than 2)CausalityTestShort RunGrangerCausalitytestVolatilityMeasurementDescriptiveAnalysisARCHLMtestARCH –GARCH(1,1)
  14. 14. The Findings - 1The existence of cointegrationand causality direction
  15. 15. ADF PPVariables No Trend Trend No Trend Trend(A)LevelLn(Composite) -0.585669 -1.765736 -0.546347 -1.785986Ln(Hijrah) -0.673868 -1.552335 -0.649713 -1.504275Ln(Emas) -0.675609 -1.701642 -0.698035 -1.684282(B) First DifferenceLn(Composite) -19.81999*** -19.86281*** -33.20673*** -33.21401***Ln(Hijrah) -33.06682*** -33.08833*** -33.05329*** -33.05729***Ln(Emas) -32.78544*** -32.82133*** -32.88004*** -32.90799***Note : *** 1% sig levelAll indices contain unit root at levelThe Variable is stationary at first difference with 1% significance level
  16. 16. NullHypothesisTrace Max Eigenvalue Trace Max EigenvalueCR CV (10%) CR CV (10%) CR CV (5%) CRCV(5%)𝑟 = 022.29727 27.066 16.539 18.892 22.29727 29.797 16.539 21.131𝑟 ≤ 15.758269 13.428 4.928501 12.296 5.758269 15.494 4.928501 14.26𝑟 ≤ 20.829768 2.7055 0.829768 2.7055 0.829768 3.8414 0.829768 3.8414Trace statistic < Critical valuesMaximum Eigenvalue statistic < Critical valuesThere is no cointegration in the variables or there is no long run relationshipbetween Islamic stock market with its counterpartNote :CR = Cointegration Rank Test, CV = Critical ValueThe lag order specified is 1 based on Akaike Information Criteria<<<<<<<<<<<<
  17. 17. Null Hypothesis F-Statistic ProbabilityLNHIJRAH does not Granger Cause LNCOMPOSITE 3.81989 0.05085LNCOMPOSITE does not Granger Cause LNHIJRAH 4.37959 0.03656**LNEMAS does not Granger Cause LNCOMPOSITE 3.44695 0.06358LNCOMPOSITE does not Granger Cause LNEMAS 4.56083 0.03289**LNEMAS does not Granger Cause LNHIJRAH 3.80930 0.05117LNHIJRAH does not Granger Cause LNEMAS 2.84118 0.09210FBM KLCIFBM Hijrah IndexFBM EmasShariah IndexNote : ** 5% sig levelIn the short run grangercausality, the statisticsshow that FBM KLCIcauses FBM HijrahIndex and FBM EmasShariah IndexUnidirectional SRCausality
  18. 18. The Findings - 2Volatility Comparison
  19. 19. -10-8-6-4-202462007 2008 2009 2010 2011 2012RCOMPOSITE-12-8-40482007 2008 2009 2010 2011 2012RHIJRAH-12-8-40482007 2008 2009 2010 2011 2012REMASFBM KLCI (Returns) FBM Hijrah Index (Return)FBM Emas Shariah Index(Return)Mean 0.018999 0.025062 0.018516Median 0.053322 0.057426 0.056589Maximum 4.350636 4.641286 4.158901Minimum -9.496810 -10.49478 -10.70320Std. Dev. 0.863988 0.946926 0.906991Skewness -1.080658 -1.069366 -1.385491Kurtosis 16.04194 17.10215 19.64100Observation 1376 1376 1376
  20. 20. ARCH Test:F-statistic 37.57417 Prob. F(1,1325) 0.000000Obs*R-squared 36.59319 Prob. Chi-Square(1) 0.000000ARCH Test:F-statistic 43.13461 Prob. F(1,1325) 0.000000Obs*R-squared 41.83772 Prob. Chi-Square(1) 0.000000ARCH Test:F-statistic 36.59806 Prob. F(1,1325) 0.000000Obs*R-squared 35.66811 Prob. Chi-Square(1) 0.000000A Simple AR (1) Model and Testing for ARCH (1) effect for FBM Emas Shariah IndexA Simple AR (1) Model and Testing for ARCH (1) effect for FBM Hijrah IndexA Simple AR (1) Model and Testing for ARCH (1) effect for FBM KLCIObs*R-Square > 0.05There isHeteroscedacity inthe variables
  21. 21. ARCH Test:F-statistic 11.83546 Prob. F(6,1362) 0.000000Obs*R-squared 67.84064 Prob. Chi-Square(6) 0.000000ARCH Test:F-statistic 10.87894 Prob. F(6,1362) 0.000000Obs*R-squared 62.60862 Prob. Chi-Square(6) 0.000000ARCH Test:F-statistic 8.530979 Prob. F(6,1362) 0.000000Obs*R-squared 49.58545 Prob. Chi-Square(6) 0.000000Testing for ARCH (6) effects on FBM Emas Shariah IndexTesting for ARCH (6) effects on FBM Hijrah IndexTesting for ARCH (6) effects on FBM KLCIObs*R-Square > 0.05There isHeteroscedacity inthe variables
  22. 22. Variable CARCH(𝜶)GARCH(𝜷)( 𝜶 + 𝜷)FBM KLCI 0.010709 0.13918 0.855041 0.994221FBM Hijrah Index 0.007442 0.101616 0.895314 0.99693FBM Emas Shariah Index 0.011712 0.147977 0.85006 0.998037All variables have high volatility and FBM Emas Shariah Index has the highestvolatility
  23. 23. Conclusion
  24. 24. No Cointegration& There isunidirectional SRCausality1st Objective 2nd ObjectiveIslamic stock marketis more volatilecompare to itscounterpartConclusion

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