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Islamic index market sentiment: evidence from the ASEAN market

Islamic index market sentiment: evidence from the ASEAN market The purpose of this paper is to examine investor sentiment by measuring the impact of market sentiment shocks on the volatility of the Islamic stock index of five ASEAN countries, with noise traders as a proxy for market sentiment.Design/methodology/approachThe GJR-GARCH model is used to capture the empirically observed fact that negative shocks in the past period have a stronger impact on variance than positive shocks in the present.FindingsAll five ASEAN Islamic stock indices show clustering volatility. However, only three countries, namely, Malaysia, Thailand and Singapore, demonstrate leverage effects. In addition, the effect of market sentiment on Islamic stock index returns is observed in the Indonesian and Malaysian markets, which are the two largest Islamic markets with a dominant Muslim population in the ASEAN. This finding implies that the trading behaviours of Muslim investors in the Shariah market are the same as their behaviours in the conventional market, that is, nonadherence to the Sunnah.Practical implicationsWhilst establishing investment strategies, creating portfolios and providing client-advisory services, investors and fund managers should factor in the presence of market sentiment and its impact on stock performance and volatility. In addition, a capital market system preventing rumour-based transactions is compelling.Social implicationsIn some markets, the Islamic financial products awareness should be increased through education to attract increased domestic investors with the potential to boost growth in the Islamic stock market.Originality/valueInvestigation market sentiment impacts on the Islamic stock index using noise traders as a proxy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Islamic index market sentiment: evidence from the ASEAN market

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-05-2020-0166
Publisher site
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Abstract

The purpose of this paper is to examine investor sentiment by measuring the impact of market sentiment shocks on the volatility of the Islamic stock index of five ASEAN countries, with noise traders as a proxy for market sentiment.Design/methodology/approachThe GJR-GARCH model is used to capture the empirically observed fact that negative shocks in the past period have a stronger impact on variance than positive shocks in the present.FindingsAll five ASEAN Islamic stock indices show clustering volatility. However, only three countries, namely, Malaysia, Thailand and Singapore, demonstrate leverage effects. In addition, the effect of market sentiment on Islamic stock index returns is observed in the Indonesian and Malaysian markets, which are the two largest Islamic markets with a dominant Muslim population in the ASEAN. This finding implies that the trading behaviours of Muslim investors in the Shariah market are the same as their behaviours in the conventional market, that is, nonadherence to the Sunnah.Practical implicationsWhilst establishing investment strategies, creating portfolios and providing client-advisory services, investors and fund managers should factor in the presence of market sentiment and its impact on stock performance and volatility. In addition, a capital market system preventing rumour-based transactions is compelling.Social implicationsIn some markets, the Islamic financial products awareness should be increased through education to attract increased domestic investors with the potential to boost growth in the Islamic stock market.Originality/valueInvestigation market sentiment impacts on the Islamic stock index using noise traders as a proxy.

Journal

Journal of Islamic Accounting and Business Research – Emerald Publishing

Published: Jun 21, 2021

Keywords: Market sentiment; Islamic index; ASEAN; Volatility; Noise; G40

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