THE RELATIONSHIP BETWEEN JAKARTA ISLAMIC INDEX AND OTHER SELECTED MARKETS: EVIDENCE FROM IMPULSE RESPONSE FUNCTION

Irfan Syauqi Beik, Wisnu Wardhana

= http://dx.doi.org/10.20473/jeba.V21I22011.4291
Abstract views = 84 times | downloads = 1233 times

Abstract


The financial crisis, which was triggered by the subprime credit in the United States, is probably the
most severe crisis for the last century. It has affected many countries in the world including Indonesia.
In spite of worsening financial market in recent months, Indonesia has a great potency to be a hub
for international Islamic finance. This paper attempts to analyze Indonesia’s Islamic Stock Market,
namely Jakarta Islamic Index (JII), in relation with other Islamic as well as conventional stock markets
in Malaysia and the United States, especially during the subprime crisis which started in early 2006.
This research uses daily closing data of stock price indices obtained from Bloomberg database from
January 1, 2006 until December 31, 2008. It employs time series analysis of cointegration and impulse
response function. The results show that there is no long run relationship between Indonesia’s capital
market and both Malaysia and the US markets. For investors, the results will give them choices for
their investment portfolio. Meanwhile, in Indonesia’s perspective, this should be an opportunity for
promoting its capital market as the potential destination for profitable investment. In the short run,
the JII is significantly affected by the shock or disturbance taking place in the other markets. However,
the results also indicate that the JII is the least volatile and more stable market.
Keywords: Jakarta Islamic Index, cointegration analysis, impulse response function

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