Foreign Interest Rates and the Islamic Stock Market Integration between Indonesia and Malaysia

Abstract T his study aimed to examine the Islamic stock market integration between Indonesia and Malaysia, and the effect of foreign interest rates on both stock markets. This study used the monthly time series of Jakarta Islamic Index, Hijrah Syariah Index, and foreign interest rates within a period from August ۲۰۰۰ to January ۲۰۱۶. Result of cointegration test demonstrates that while there is a cointegration between Jakarta Islamic Index and Hijrah Shariah Index, no cointegration occurred between Jakarta Islamic Index, Hijrah Shariah Index, and foreign interest rates. Estimation result of the VAR model indicates that there is a long-run relationship between Jakarta Islamic Index and Hijrah Shariah Index, and that there is integration between Indonesian and Malaysian Islamic stock markets. Furthermore, estimation result of the VARX model reveals that foreign interest rates only affected Malaysian Islamic stock price index.

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Keywords: Stock Market Integration ، Foreign Interest Rate ، VAR Model ، VARX Model. JEL Classification: F۳۳ ، F۳۶ ، G۱۵۰ ، E۴۴۰