Co-integration and Causality: Evidence from Islamic and Conventional Sectoral Indices at Bursa Malaysia

  • Mohamad Azwan Md Isa
  • Norashikin Ismail
  • Ruziah A Latif
  • Zaibedah Zaharum
  • Nor Hadaliza Abd Rahman
  • Basaruddin Shah Basri


This study aims to examine the co-integration and causality among the FBM Hijrah Shariah Index (HSI), Mid70 Index (Mid70), and seven (7) sectoral indices, namely Construction, Consumer Product, Finance, Industrial Product, Plantation, Property and Technology. Using the daily closing prices from January 1, 2009 to December 31, 2018, the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests show that the series are stationary or integrated at the same order. Further, the Trace and Max-Eigen statistics of Johansen Co-integration test reveal the existence of co-movements and long run (LR) equilibrium among the HSI, Mid70 and the sectoral indices. The Vector Error Correction Model (VECM) proves that the Technology Index poses the most rapid speed of adjustment by 46% if there is deviation from the LR equilibrium whilst the HSI and Mid70 indicate 21% speed of adjustment, respectively. The Wald test evidences that in short run, the HSI is caused positively by Mid70, Property and Technology Indices whilst Construction, Consumer Product and Industrial Product Indices cause HSI negatively. Whereas, the Finance and Plantation Indices are found not to cause HSI in short run. These findings are meaningful and beneficial particularly to the stock market investors, portfolio fund managers, market operator and policy makers for economic and investment decision making.


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How to Cite
MD ISA, Mohamad Azwan et al. Co-integration and Causality: Evidence from Islamic and Conventional Sectoral Indices at Bursa Malaysia. Asian Journal of Accounting and Finance, [S.l.], v. 2, n. 2, p. 1-13, june 2020. ISSN 2710-5857. Available at: <>. Date accessed: 11 aug. 2020.