Emerging Stock Market

1. EFFECTUAL INTERRELATIONSHIP AMONGEFFECTUAL INTERRELATIONSHIP AMONG
THE ISLAMIC STOCK MARKET OF INDIATHE ISLAMIC STOCK MARKET OF INDIA
WITH OTHER EMERGING STOCK MARKETWITH OTHER EMERGING STOCK MARKET
MOHAMMAD IRFANMOHAMMAD IRFAN
RESEARCH SCHOLARRESEARCH SCHOLAR
DEPARTMENT OF MANAGEMENTDEPARTMENT OF MANAGEMENT
CENTRAL UNIVERSITY OF HARYANA, MAHENDERGARH, HARYANACENTRAL UNIVERSITY OF HARYANA, MAHENDERGARH, HARYANA

2. OBJECTIVESOBJECTIVES
The present paper is focused on examining the risk and return behaviour of
the selected Islamic benchmark indices (S&P BSE Shariah, S&P Europe
350 Shariah, S&P Japan 500, S&P GCC Shariah, DJIM ) during the
period from the date of launch of Nifty Shariah index in Indian Capital
Market i.e. from 1st
Jan 2010 to 31st
Oct 2013

3. OBJECTIVESOBJECTIVES
To analysis the performance of S&P BSE Shariah Index, S&P
Europe Shariah, S&P GCC Composite Shariah, S&P Japa 500,
Dow Jones Islamic Market(DJIM).
To analysis the co-integration of S&P BSE Shariah Index, with
other selected indices and vice versa.
To find out the integration of S&P BSE Shariah Index by
volatility of selected indices and vice versa.
To do comparative analysis between S&P BSE Shariah Index,
S&P Europe Shariah, S&P GCC Composite Shariah, S&P Japan
500, Dow Jones Islamic Market(DJIM).

4. INTRODUCTIONINTRODUCTION
ISLAMIC CANONICAL LAWISLAMIC CANONICAL LAW
Shariah is Islamic canonical law, which observant MuslimsShariah is Islamic canonical law, which observant Muslims
adhere to in their daily lives. Shariah has certain stricturesadhere to in their daily lives. Shariah has certain strictures
regarding finance and commercial activities permitted forregarding finance and commercial activities permitted for
Muslims. It prescribes a set of criteria which needs to beMuslims. It prescribes a set of criteria which needs to be
satisfied before a Muslim investor or institution can invest insatisfied before a Muslim investor or institution can invest in
the equity of a given company. From the view point ofthe equity of a given company. From the view point of
Shariah law, businesses such as those dealing in pork,Shariah law, businesses such as those dealing in pork,
alcohol, gambling, conventional financial services, media oralcohol, gambling, conventional financial services, media or
advertising, tobacco, pornography, music etc are non-advertising, tobacco, pornography, music etc are non-
permissible for investment. Furthermore, companies have topermissible for investment. Furthermore, companies have to
be screened so that they satisfy certain accounting ratiobe screened so that they satisfy certain accounting ratio
restrictions.restrictions.

5. INTRODUCTIONINTRODUCTION
QURAAN STATES THE BUSINESS
The Islamic economy is built upon the real economy this is
where the process of production of tangible goods and services, Islam
has designated a role for finance in the economy - due to Islam's focus
on the real economy which is the wealth creating aspect of any economy
finance in Islam is not an end in itself as there is no interest (Riba).
Wealth in Islam is created through each stage of industry i.e. mining,
refining, manufacturing and sales' All of this adds value at each stage
and creates wealth for the economy.
‫با‬َ‫ا‬‫ر‬ِّ ‫مال‬َ‫ا‬ ‫ر‬َّ‫م‬ ‫ح‬َ‫ا‬ ‫و‬َ‫ا‬ ‫ع‬َ‫ا‬ ‫ي‬ْ‫َع‬‫ب‬َ‫ا‬‫ل‬ْ‫َع‬‫لُها‬ّ‫ه‬‫لل‬َّ‫م‬ ‫ح‬َ‫ا‬ ‫أ‬َ‫ا‬‫و‬َ‫ا‬ ‫با‬َ‫ا‬‫ر‬ِّ ‫لل‬ُ‫لا‬ ‫ث‬ْ‫َع‬‫م‬ِ‫ْث‬ ‫ع‬ُ‫لا‬‫ي‬ْ‫َع‬‫ب‬َ‫ا‬‫ل‬ْ‫َع‬‫ماا‬َ‫ا‬ ‫ن‬َّ‫م‬‫إ‬ِ‫ْث‬‫ا‬ْ‫َع‬‫لو‬ُ‫لا‬‫ا‬‫ق‬َ‫ا‬‫م‬ْ‫َع‬ ‫ُه‬ُ‫لا‬ ‫ن‬َّ‫م‬‫أ‬َ‫ا‬‫ب‬ِ‫ْث‬‫ك‬َ‫ا‬ ‫ل‬ِ‫ْث‬‫ذ‬َ‫ا‬
That is because they say: ‘Trading is only like Riba,' whereas
Allah has permitted trading and forbidden Riba. [al-Baqarah, 2:275]

6. INTRODUCTIONINTRODUCTION
• SHARIAH SCREENINGSHARIAH SCREENING
• Standard Poor’s has contracted with Ratings IntelligenceStandard Poor’s has contracted with Ratings Intelligence
Partners (RI) to provide the Shariah screens and filter the stocksPartners (RI) to provide the Shariah screens and filter the stocks
based on these screens. Ratings Intelligence Partners is abased on these screens. Ratings Intelligence Partners is a
London/Kuwait-based consulting company specializing inLondon/Kuwait-based consulting company specializing in
solutions for the global Islamic investment market. Its teamsolutions for the global Islamic investment market. Its team
consists of qualified Islamic researchers who work directly with aconsists of qualified Islamic researchers who work directly with a
Shariah Supervisory Board. It is continually working withShariah Supervisory Board. It is continually working with
regional banks to create Shariah-compliant equity products andregional banks to create Shariah-compliant equity products and
expand investment offerings. Shaiarh Screening based on:expand investment offerings. Shaiarh Screening based on:
• Sectoral Based Screening:Sectoral Based Screening: BSE TASIS Shariah50 includesBSE TASIS Shariah50 includes
sector like Oil Gas, FMCG, IT, Health Care, Transportsector like Oil Gas, FMCG, IT, Health Care, Transport
Equipment, Housing Related, Telecom, Metal Mining, capitalEquipment, Housing Related, Telecom, Metal Mining, capital
Goods, Chemical Petrol, Consumer Durable, Diversified. AllGoods, Chemical Petrol, Consumer Durable, Diversified. All
these sectors are Permissible in Shariah Law.these sectors are Permissible in Shariah Law.

7. INTRODUCTIONINTRODUCTION
• Financial Based Screening:Financial Based Screening: Since interest-based transactions areSince interest-based transactions are
prohibited by Shariah, companies passing the business screeningprohibited by Shariah, companies passing the business screening
stage are further screened to ensure that their dealings involvingstage are further screened to ensure that their dealings involving
interest-based debt or earnings out of deployment of funds oninterest-based debt or earnings out of deployment of funds on
interest are within the maximum tolerance limits set by Shariahinterest are within the maximum tolerance limits set by Shariah
scholars.scholars.
• Interest based-debt should be less than or equal to 25% of TotalInterest based-debt should be less than or equal to 25% of Total
Assets.Assets.
• Interest income plus returns (currently considered @8%) fromInterest income plus returns (currently considered @8%) from
interest-based investments should be less than or equal to 3% ofinterest-based investments should be less than or equal to 3% of
the total income.the total income.
• Receivables plus cash and bank balances should be less than orReceivables plus cash and bank balances should be less than or
equal to 90% of Total Assets’equal to 90% of Total Assets’

8. HYPOTHESISHYPOTHESIS
• Null HypothesisNull Hypothesis
• HH00 = There is no significant relationship between SP= There is no significant relationship between SP
BSE Shariah and other select indices.BSE Shariah and other select indices.
• HH00 = There is no significant relationship between SP= There is no significant relationship between SP
Europe 350 Shariah and other select indices.Europe 350 Shariah and other select indices.
• HH00 = There is no significant relationship between SP= There is no significant relationship between SP
GCC Investable Shariah and other select indices.GCC Investable Shariah and other select indices.
• HH00 = There is no significant relationship between SP= There is no significant relationship between SP
Japan 500/ TOPIX 150 Shariah and other select indices.Japan 500/ TOPIX 150 Shariah and other select indices.
• HH00 = There is no significant relationship between DJIM= There is no significant relationship between DJIM
and other select indices.and other select indices.

9. HYPOTHESISHYPOTHESIS
• H1-H1-CSR and FP (Financial Performance) is anCSR and FP (Financial Performance) is an
independent from each other and CSR does not dependindependent from each other and CSR does not depend
upon FP as dividend of company.upon FP as dividend of company.

10. DATA ANALYSIS INTERPRETATIONDATA ANALYSIS INTERPRETATION
Methodology
Study the Performance of Risk and Return behavior of indices .
Beta (CAPM) Capital Assets Price Model .
 CAGR (Compound Annual Growth Rate).
 Correlation.
 T-test, etc.

11. EMPIRICAL RESULTSEMPIRICAL RESULTS
• Risk and Return behaviour ofRisk and Return behaviour of SP BSE Shariah,SP BSE Shariah,
SP Europe 350,SP Europe 350, SP GCC Investable Shariah,SP GCC Investable Shariah, TheThe
SP/TOPIX 150 and the Dow Jones Islamic MarketSP/TOPIX 150 and the Dow Jones Islamic Market
IndexIndex from 1from 1stst
Jan. 2010 to 30Jan. 2010 to 30thth
Sept. 2013Sept. 2013..
• This part of study narrated the risk and returnThis part of study narrated the risk and return
behavior of Shariah Index. The daily returns of allbehavior of Shariah Index. The daily returns of all
selected Indices were calculated as natural logarithmselected Indices were calculated as natural logarithm
of today price divide by tomorrow price.of today price divide by tomorrow price.

12. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 1: Performance of All Selected Islamic Indices from
1st
Jan. 2010 to 31st
Oct. 2013
The table 1 explain the respectively of GCC Shariah is lower as
compare to the volatility of other Islamic indices, However, CAGR
of DJIM Shariah is greater then the CAGR other Islamic indices.
Hence, GCC Shariah is less risky than other Islamic indices. But
growth of DJIM Shariah is increase because of oldest Islamic indices
in the world.
Indices Returns Volatility CAGR
BSE Shariah 0.018 27.73 -2.00
Europe Shariah 0.034 30.04 -2.00
GCC Shariah 0.013 21.06 -2.00
Japan Shariah 0.007 38.91 -2.00
DJIM Shariah 0.029 30.83 0.06

13. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 2: Performance of Beta between SP BSE Shariah
and Other Selected Islamic Indices from 1st
Jan. 2010 to 31st
Oct. 2013
The table 2, described the results of the beta with respective to BSE
Shariah. The beta value of BSE Shariah Indices over the Other
Selected Islamic Indices are SP Europe, SP Japan, DJIM Islamic
are negative market movements and rest of SP GCC Shariah
positive impact of market movement.
Indices Beta
SP BSE Shariah SP Europe -0.798
SP BSE Shariah SP GCC Shariah 0.782
SP BSE Shariah SP Japan -0.103
SP BSE Shariah DJIM -0.174

14. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 3: Performance of Beta between SP Europe
Shariah and Other Selected Islamic Indices from 1st
Jan.
2010 to 31st
Oct. 2013
The table 3, described the results of the beta with respective to SP
Europe Shariah. The beta value of SP Europe Shariah Indices over
the Other Selected Islamic Indices are SP BSE Shariah, SP GCC
Shariah, Islamic indices are negative market movements and rest of
SP Japan Shariah, DJIM positive impact of market movement.
Indices Beta
SP Europe SP BSE Shariah -0.937
SP Europe SP GCC Shariah -0.307
SP Europe SP Japan 0.363
SP Europe DJIM 0.668

15. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 4: Performance of Beta between SP GCC Shariah
and Other Selected Islamic Indices from 1st
Jan. 2010 to 31st
Oct. 2013
The table 4, described the results of the beta with respective to SP
GCC Shariah. The beta value of SP GCC Shariah Indices over the
Other Selected Islamic Indices are SP Europe Shariah, DJIM,
Islamic indices are negative market movements and rest of SP
Japan Shariah, SP BSE Shariah positive impact of market
movement.
Indices Beta
SP GCC Shariah SP BSE Shariah 0.4509
SP GCC Shariah SP Europe -0.1509
SP GCC Shariah SP Japan 0.1263
SP GCC Shariah DJIM -0.1937

16. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 5: Performance of Beta between SP Japan and
Other Selected Islamic Indices from 1st
Jan. 2010 to 31st
Oct. 2013
The table 5, described the results of the beta with respective to SP
Japan Shariah. The beta values of SP Japan Shariah Indices over
the Other Selected Islamic Indices are SP BSE Shariah, Islamic
indices is negative market movements and rest of SP Europe
Shariah, SP GCC Shariah, DJIM are positive impact of market
movement.
Indices Beta
SP Japan SP BSE Shariah -0.204
SP Japan SP Europe 0.609
SP Japan SP GCC Shariah 0.431
SP Japan DJIM 0.267

17. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 6: Performance of Beta between DJIM and Other
Selected Islamic Indices from 1st
Jan. 2010 to 31st
Oct. 2013
The table 6, described the results of the beta with respective to
DJIM. The beta values of DJIM Indices over the Other Selected
Islamic Indices are SP BSE Shariah, SP GCC Shariah Islamic
indices are negative market movements and rest of SP Europe
Shariah, SP Japan are positive impact of market movement.
Indices Beta
DJIM SP BSE Shariah -0.215
DJIM SP Europe 0.704
DJIM SP GCC Shariah -0.042
DJIM SP Japan 0.167

18. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 7: Correlation between SP BSE Shariah and Other
Selected Islamic Indices from 1st
Jan. 2010 t o 31st
Oct. 2013
The table 7, described The study of relationship between BSE Shariah and other
selected Islamic indices indicates that, null hypothesis is rejected and alternate
hypothesis is accepted in all the cases. Hence, there is a significant relationship
between BSE Shariah and other world major Islamic indices. In all the cases,
correlation is significant at 1% level of significance, indicating weak integration of
BSE Shariah with DJIM, SP Japan and SP Europe. Though, the correlation of
BSE Shariah is Moderate with SP GCC Shariah.
Indices
Correlatio
n
Level of
Correlatio
n
T-test result
t-
value p' value
Hypothesis
Accepted
SP BSE Shariah SP Europe -0.86 Weak -0.375 0.708 H1: Accepted
SP BSE Shariah SP GCC Shariah 0.59 Moderate 0.150 0.881 H1: Accepted
SP BSE Shariah SP Japan -0.15 Weak 0.217 0.828 H1: Accepted
SP BSE Shariah DJIM -0.19 Weak -0.252 0.801 H1: Accepted

19. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 8: Correlation between SP Europe Shariah and
Other Selected Islamic Indices from 1st
Jan. 2010 t o 31st
Oct.
2013
The table 8, described The study of relationship between SP Europe Shariah
and other selected Islamic indices indicates that, null hypothesis is rejected and
alternate hypothesis is accepted in all the cases. Hence, there is a significant
relationship between SP Europe Shariah and other world major Islamic indices.
In all the cases, correlation is significant at 1% level of significance, indicating
weak integration of SP Europe Shariah with SP GCC Shariah, BSE Shariah.
Though, the correlation of SP Europe Shariah is Moderate with SP Japan and
High with DJIM.
Indices
Correlatio
n
Level of
Correlatio
n
T-test result
t-
value p' value
Hypothesis
Accepted
SP Europe SP BSE Shariah -0.86 Weak 0.375 0.708 H1: Accepted
SP Europe SP GCC Shariah -0.22 Weak 0.560 0.575 H1: Accepted
SP Europe SP Japan 0.05 Moderate 0.523 0.601 H1: Accepted
SP Europe DJIM 0.69 High 0.113 0.910 H1: Accepted

20. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 9: Correlation between SP GCC Shariah and Other
Selected Islamic Indices from 1st
Jan. 2010 t o 31st
Sept. 2013
The table 9, described The study of relationship between SP GCC Shariah and
other selected Islamic indices indicates that, null hypothesis is rejected and
alternate hypothesis is accepted in all the cases. Hence, there is a significant
relationship between SP GCC Shariah and other world major Islamic indices. In
all the cases, correlation is significant at 1% level of significance, indicating weak
integration of SP GCC Shariah with SP Europe Shariah, SP Japan Shariah and
DJIM. Though, the correlation of SP GCC Shariah is Moderate with SP
BSEShariah.
Indices
Correlatio
n
Level of
Correlatio
n
T-test result
t-
value p' value
Hypothesis
Accepted
SP GCC Shariah SP BSE Shariah 0.59 Moderate -0.150 0.881 H1: Accepted
SP GCC Shariah SP Europe -0.22 Weak -0.560 0.575 H1: Accepted
SP GCC Shariah SP Japan 0.23 Weak 0.117 0.907 H1: Accepted
SP GCC Shariah DJIM -0.03 Weak -0.420 0.675 H1: Accepted

21. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 10: Correlation between SP Japan Shariah and Other
Selected Islamic Indices from 1st
Jan. 2010 t o 31st
Oct. 2013
The table 10, described The study of relationship between SP Japan Shariah and
other selected Islamic indices indicates that, null hypothesis is rejected and
alternate hypothesis is accepted in all the cases. Hence, there is a significant
relationship between SP Japan Shariah and other world major Islamic indices. In
all the cases, correlation is significant at 1% level of significance, indicating weak
integration of SP Japan Shariah with SP GCC Shariah, SP BSE Shariah and
DJIM. Though, the correlation of SP Japan Shariah is Moderate with SP Europe
Shariah.
Indices
Correlatio
n
Level of
Correlatio
n
T-test result
t-
value p' value
Hypothesis
Accepted
SP Japan SP BSE Shariah -0.15 Weak -0.217 0.828 H1: Accepted
SP Japan SP Europe 0.47 Moderate -0.523 0.601 H1: Accepted
SP Japan SP GCC Shariah 0.23 Weak -0.117 0.907 H1: Accepted
SP Japan DJIM 0.21 Weak -0.420 0.675 H1: Accepted

22. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 11: Correlation between DJIM and Other Selected
Islamic Indices from 1st
Jan. 2010 t o 31st
Oct. 2013
The table 11, described The study of relationship between DJIM and other
selected Islamic indices indicates that, null hypothesis is rejected and alternate
hypothesis is accepted in all the cases. Hence, there is a significant relationship
between DJIM and other world major Islamic indices. In all the cases, correlation
is significant at 1% level of significance, indicating weak integration of DJIM with
SP GCC Shariah, SP BSE Shariah and SP Japan. Though, the correlation of
DJIM is high with SP Europe Shariah.
Indices
Correlatio
n
Level of
Correlatio
n
T-test result
t-
value p' value
Hypothesis
Accepted
DJIM SP BSE Shariah -0.19 Weak 0.252 0.801 H1: Accepted
DJIM SP Europe 0.69 High -0.113 0.910 H1: Accepted
DJIM SP GCC Shariah -0.03 Weak 0.420 0.675 H1: Accepted
DJIM SP Japan 0.02 Weak 0.420 0.675 H1: Accepted

23. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 12: Correlation Matrix of All Selected Islamic Indices
from 1st
Jan. 2010 to 31st
Oct. 2013
The tables 12, In comparing the returns of the All Selected Islamic indices that
mean the relationship between of all Islamic indices show the level of
relationship like strong, moderate, weak. This relationship is very similar to the
result of Ahama and Ibrahim (2002) in Malaysia and P. Natarajan and M.
Dharani (2011).
INDICES BSE Shariah Europe Shariah GCC Shariah Japan Shariah DJIM Shariah
SP BSE Shariah 1
SP Europe Shariah -0.009 1.000
SP GCC Shariah 0.059 -0.022 1.000
SP Japan Shariah -0.015 0.005 0.023 1.000
DJIM Shariah -0.019 0.069 -0.003 0.021 1

24. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 13: Descriptive Statistics for All Selected Islamic Indices
from 1st
Jan. 2010 to 31st
Oct. 2013
The table 13, SP Japan Shariah has witnessed greater fluctuations which have
been indicated by very high variation followed by DJIM, SP Europe Shariah,
SP BSE Shariah. In the case SP GCC Shariah has shown very low fluctuations.
Skewness of the distribution of all the indices prices is negative.
INDICES BSE Shariah Europe Shariah GCC Shariah Japan Shariah DJIM Shariah
Mean 0.018 0.034 0.013 0.007 0.029
Median 0.024 0.095 0.013 0.027 0.076
Standard Deviation 0.893 0.968 0.678 1.253 0.993
Sample Variance 0.798 0.936 0.460 1.570 0.986
Kurtosis 0.559 2.361 15.633 2.257 3.203
Skewness -0.183 -0.319 -1.529 -0.402 -0.422
Range 6.321 8.856 10.306 12.695 9.388
Minimum -3.581 -4.158 -5.799 -7.366 -5.294
Maximum 2.740 4.698 4.507 5.329 4.094
Sum 17.526 32.868 12.320 7.146 27.994
Count 964.000 964.000 964.000 964.000 964.000

25. EMPIRICAL RESULTSEMPIRICAL RESULTS
Table 14: Graphical Presentation for All Selected Islamic
Indices from 1st
Jan. 2010 to 31st
Oct. 2013
The table 14, Graphical Presentation show the all selected Islamic Indices have
movement of parallel to each other that means all Islamic Indices the mutual
relationship with all because of all Islamic Indices work with the Shariah
Responsible investment.

26. CONCLUSIONCONCLUSION
• The results of this study strongly support the view that, there is aThe results of this study strongly support the view that, there is a
substantial integration between Indian and International Islamicsubstantial integration between Indian and International Islamic
financial markets. SP Japan Shariah has witnessed a greaterfinancial markets. SP Japan Shariah has witnessed a greater
fluctuation which has been indicated by a very high Co-efficient offluctuation which has been indicated by a very high Co-efficient of
variation compared to other select indices. BSE Shariah has shownvariation compared to other select indices. BSE Shariah has shown
Sensitive association (Strong, Moderate, Weak) with all selectedSensitive association (Strong, Moderate, Weak) with all selected
Islamic indices. In the case of CAGR DJIM has growing inIslamic indices. In the case of CAGR DJIM has growing in
Comparison of All Selected Islamic Indices. In the case of volatilityComparison of All Selected Islamic Indices. In the case of volatility
SP Japan Shariah is more volatile and, DJIM, SP Europe Shariah,SP Japan Shariah is more volatile and, DJIM, SP Europe Shariah,
SP BSE Shariah and SP GCC Shariah are follower. In the caseSP BSE Shariah and SP GCC Shariah are follower. In the case
multi-correlation, SP Europe Shariah and DJIM Islamic Indexmulti-correlation, SP Europe Shariah and DJIM Islamic Index
have highly correlated to each other. Lowest correlation indicateshave highly correlated to each other. Lowest correlation indicates
the relationship between SP Japan Shariah SP Europe Shariahthe relationship between SP Japan Shariah SP Europe Shariah
Index. Shariah is not only in these selected indices but also in theIndex. Shariah is not only in these selected indices but also in the
world because Islamic Finance growing the world economy. Islamicworld because Islamic Finance growing the world economy. Islamic
finance will be the future of world economy because Islamicfinance will be the future of world economy because Islamic
Finance works with socially responsiveness index series. ShariahFinance works with socially responsiveness index series. Shariah
indices are working ethical and sophisticated way for theindices are working ethical and sophisticated way for the

27. THANK YOU