Integration of Islamic capital market in ASEAN-5 countries

Abstract

Purpose The purpose of this study is to investigate the nature and integration of Islamic stock markets across the Association of Southeast Asian Nations (ASEAN-5) countries for economic community (AEC) development. Design/methodology/approach Using samples of daily closing prices from 2009 to 2014 across ASEAN-5 countries, co-integration and Granger-causality tests were applied. Findings This research finds that Islamic capital markets across ASEAN-5 countries remain highly integrated despite the global financial crisis of 2008, and it also finds the integration strength between Jakarta Islamic Index -Indonesia and Bursa Malaysia Emas Sharia-Malaysia Islamic capital markets to be the most influential across ASEAN-5 countries, while MSCI-Philippine Islamic capital market is the most vulnerable across ASEAN-5 Islamic capital markets. Research limitations/implications The overwhelming benefit of Islamic stock market integration across ASEAN-5 countries, and, even in a broader context, awaits further inquiry. Originality/value Islamic capital markets across ASEAN-5 countries are integrated regardless of the post-global financial crisis. This contributes to confirming cross-border integration policies, especially for AEC development.

Islamic Capital Market Integration and Asymmetric Information: A Study in the Five Asean Countries From the Post-Global Financial Crisis

“…Besides, capital market integration has been also proven to bring many benefits, e.g., an increase in liquidity (Singh, 2009), the more efficient resource-allocation for improved productivity and more access to investment opportunities (Bonfiglioli, 2008;Gehringer, 2013), the easier rather than a single country portfolio is also considered a distinctive approach to measure levels of capital market integration (De Santis & Sarno, 2008;Bekaert et al, 2009;Lekovic, 2018). Given that argument, this study aims to examine empirically the impact of the Islamic capital market integration (using a two-country portfolio as a dummy variable to measure Islamic capital market integration levels) on asymmetric information among the five ASEAN countries, following up on the findings of Qizam et al (2020). 1 For instance, the strongest Islamic capital market integration exists in the integration between Indonesia and Malaysia, while the weakest integration is experienced by the integration between the Philippines and any other country of the four ASEAN countries (Qizam et al, 2020).…”

“…Given that argument, this study aims to examine empirically the impact of the Islamic capital market integration (using a two-country portfolio as a dummy variable to measure Islamic capital market integration levels) on asymmetric information among the five ASEAN countries, following up on the findings of Qizam et al (2020). 1 For instance, the strongest Islamic capital market integration exists in the integration between Indonesia and Malaysia, while the weakest integration is experienced by the integration between the Philippines and any other country of the four ASEAN countries (Qizam et al, 2020). Thus, this research is expected to provide additional evidence, more specifically, related to how the effect of integration levels among the ASEAN countries drives asymmetric information.…”

“…Thus, this research is expected to provide additional evidence, more specifically, related to how the effect of integration levels among the ASEAN countries drives asymmetric information. Referring to Qizam et al (2020), the integration levels of Islamic capital markets among the five ASEAN countries will be adopted to further look into their effects on asymmetric information.…”

“…Third, these results imply that investors should be alert when capital markets are getting more integrated because the benefits from international diversification will decrease so that trading strategies and investment strategies should be directed to respond to and to accommodate the changes in Islamic capital market integration. Fouth, because of the imperfect integration, knowing integration levels among stock indices of 1 Qizam et al (2015) focus on examining integration among the five Islamic Capital markets in ASEAN (Indonesia, Malaysia, Philippines, Singapore and Thailand) in the crisis period from 2007 to 2012, while Qizam et al (2020) not only continue to investigate the nature and integration of Islamic stock markets across the five ASEAN countries for ASEAN economic community (AEC) development but also explore its potential benefits from literature review using data in the post-crisis period from 2009 to 2014. In this regard, my current study addresses not only the issue of capital market integration and its potential benefits but also provides empirical evidence of its impact and benefits on asymmetric information, using data in the postcrisis period from 2009 to 2015, being parallel to data used in the study of Qizam et al (2020) who also used the post-crisis data series from 2009 to 2014.…”

“…Fouth, because of the imperfect integration, knowing integration levels among stock indices of 1 Qizam et al (2015) focus on examining integration among the five Islamic Capital markets in ASEAN (Indonesia, Malaysia, Philippines, Singapore and Thailand) in the crisis period from 2007 to 2012, while Qizam et al (2020) not only continue to investigate the nature and integration of Islamic stock markets across the five ASEAN countries for ASEAN economic community (AEC) development but also explore its potential benefits from literature review using data in the post-crisis period from 2009 to 2014. In this regard, my current study addresses not only the issue of capital market integration and its potential benefits but also provides empirical evidence of its impact and benefits on asymmetric information, using data in the postcrisis period from 2009 to 2015, being parallel to data used in the study of Qizam et al (2020) who also used the post-crisis data series from 2009 to 2014. Thus, the different data period ending in 2014 and 2015 in the study of Qizam et al (2020) and my current study is merely needed to accommodate different research methods applied in the two studies, not influencing the substance of analysis.…”