Comparison of the Islamic and the conventional stock market in Indonesia and developed countries

Siti Zulaikha, Ariff Abdul Kareem, Mansur Masih, Yamazaki Yoshihiro, Sulistya Rusgianto, Tika Widiastuti

Research output: Contribution to journalArticlepeer-review


In the global economy, global financial shocks adversely affect the financial industry, especially stock markets. Focusing on this, the present study aims to assess how global financial shock affected the links between Indonesia and seven other selected countries (U.S.A., U.K., Japan, Kuwait, Saudi Arabia, Malaysia, and Qatar) from December 2004 to December 2012. The correlations between the Islamic and conventional stock markets tend to be higher at both high and low frequencies during a crisis period. Using the wavelet method, this study demonstrates higher correlations during a crisis period, in both the short and the long term. The co-movements for certain countries were apparent across the analysed horizon in the periods of lower frequencies (more than one year). The obtained results also reveal varying responses for both types of stock markets, particularly in the Indonesia-Malaysia nexus and the Indonesia-Saudi Arabia nexus. This indicates the solidity of the Islamic finance system against global financial shock that typically affects the conventional finance system. Nevertheless, this does not mean that the Islamic finance system is free from the impact of global financial shock, given its linkages to the U.S.A., Japan and other markets. The outcomes of the present study create significant implications for financial investors to optimise their asset allocation strategies or to diversify their global investments, as the changing correlations of the stock markets at high and low frequencies (or investment horizons) influence the portfolios with different rebalancing horizons.

Original languageEnglish
Pages (from-to)1-21
Number of pages21
JournalInternational Journal of Innovation, Creativity and Change
Issue number8
Publication statusPublished - 2020


  • Global financial shock
  • Islamic stock market
  • Wavelet


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