Spillover Effect of Islamic Stock Markets in Asia
Purpose: The aim of this study is to investigate correlation and the spillover effect between the Islamic stock index in Indonesia and other Asian emerging markets including Malaysia, Thailand, India, China and Taiwan. Design/Methodology/Approach: The time series data used is from daily returns from May 13, 2011 to October 17, 2017 with 1395 observations. Using Pearson Correlation, the multivariate VAR model and the Granger Causality test, the study found low correlation across markets. Findings: The fluctuation of the Indonesian Islamic stock index is substantially dominated by local information and creates a spillover effect in all markets in Asia. It also reveals a bidirectional relationship between the Indonesian market and the Thailand, Indian and Taiwanese markets, but only a unidirectional relationship between Indonesian market and Malaysian and Chinese markets. Practical Implications: The research is able to examine the integration of conventional stock markets between Indonesian and Asian markets quite well to investigate the spillover effect in the region. Originality/Value: The Indonesian market creates an essentially dominant spillover effect on all Asian market investigated. Using Islamic stock market, this study complements studies conducted by other researchers.