The subprime crisis and Islamic stock markets integration

Abstract

Purpose

The purpose of this paper is to examine the effects of the current global crisis on the integration and co‐movements of selected Islamic stock markets.

Design/methodology/approach

Time series techniques of cointegration were used over the period spanning from February 15, 2006 to December 31, 2008. In order to explore changes in the stock market integration and co‐movement, following Majid and Kassim, we divide the period of analysis into two periods, namely the pre‐crisis period (February 15, 2006‐July 25, 2007) and during crisis period (July 26, 2007‐December 31, 2008).

Findings

No evidence was found of cointegration among the Islamic stock markets in both periods. Accordingly, the 2007 subprime crisis does not seem to affect the long‐run co‐movements among the Islamic stock markets.

Practical implications

The Islamic stock markets provide opportunity for the potential benefits from international portfolio diversification, even after the subprime crisis. The prohibition of riba, gharar and maysir is one of the plausible reasons of no cointegration in the Islamic stock markets.

Originality/value

Using the Islamic stock indices, to the best of the authors' knowledge, goes clearly beyond the existing literature on the subject matter.

Citation

Abdul Karim, B., Akila Mohd. Kassim, N. and Affendy Arip, M. (2010), "The subprime crisis and Islamic stock markets integration", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 3 No. 4, pp. 363-371. https://doi.org/10.1108/17538391011093298