The impact of macroeconomic variables on the Islamic stock market

The purpose of this research is to determine the impact of macroeconomic factors on the Malaysian Islamic stock market. This study considered three macroeconomic variables which include: exchange rate (LEXR), inflation (LCPI) and money supply (LM1) for FTSE Bursa Malaysia Hijrah Shariah Index (LFTSE). The monthly data from the year 2011 until 2016 were used in this study. Autoregressive Distributed Lag (ARDL) method was adopted to analyse the data collected to understand the determinants of the Islamic stock market in Malaysia. By testing the dependent and independent variables using the ARDL method, the empirical results have found significant relationships between macroeconomic indicators and the Islamic stock market. There were a positive significant long-run and short-run relationship between money supply and the Islamic stock market in Malaysia. Meanwhile, the exchange rate and inflation showed a negative but significant long-run and short-run relationship with the Islamic stock market. In conclusion, the findings and recommendation in the present study can help in developing a positive impact to improve the performance of the Islamic stock market in Malaysia.