MARKET INTEGRATION IN ASEAN-5: EVIDENCE OF ISLAMIC AND CONVENTIONAL STOCK MARKETS

Abstract

This paper examines the stock markets integration for both Islamic and conventional stock markets in ASEAN-5. Time series techniques of cointegration, VECM Granger causality, GARCH (1,1) model and daily data covering the period from October 2009 to October 2019 are used in this study. We found evidence of no cointegration among the Islamic stock markets in ASEAN-5 however there exists cointegration relationship among the conventional stock markets and also among Islamic and conventional stock markets in ASEAN-5. Islamic stock markets are found to be strongly linked with their conventional counterparts. A portfolio comprising both Islamic and conventional stock markets shall hinder portfolio managers and market participants from diversification benefit. Thus, the Islamic stock markets in ASEAN-5 provide opportunities for international portfolio diversification and hedging strategies. Indeed, the findings shall motivate international investors and fund managers to restructure their investment in Islamic financial markets in this region. This study contributes to the limited existing empirical evidence of diversification based on Islamic stock markets.