THE INTEGRATION OF ISLAMIC STOCK MARKETS: DOES A PROBLEM FOR INVESTORS?

LJMS 2013, 7 Labuan e-journal of Muamala and Sociey, Vol. 7, 2013, pp. 17-27 Labuan e-journal of Muamala and Sociey THE INTEGRATION OF ISLAMIC STOCK MARKETS: DOES A PROBLEM FOR INVESTORS? Mohd Yahya Mohd Hussin 1, Yusni Anis Yusof 1, Fidlizan Muhammad 1, Azila Abdul Razak 1, Emilda Hashim 1, Nur Fakhzan Marwan 3, 1 Faculy of Managemen and Economics, Universii Pendidikan Sulan Idris, Perak 2 Faculy of Business Managemen, Universii Teknologi MARA, Kedah ABSTRACT This paper empirically invesigaes co-inegraion beween Islamic sock marke in Malaysia, Indonesia and he world by applying he Vecor Auo Regression (VAR) mehod. This research used monhly daa from January 2007 o May 2012 aken from auhorized sources. The finding shows ha here is no long-run or equilibrium relaionship exiss beween FTSE Bursa Malaysia Emas Shariah (FBMES), Jakara Islamic Index (JAKISL), and Dow Jones Islamic Marke index (DJIM). Based on he resul, hence, i can be concluded ha he Islamic sock markes of Malaysia does no inegrae wih Indonesia s, as well as wih he world markes in he long run. This will creae rooms for invesors o diversify heir invesmen porfolios, which pus Malaysia as one of heir favoured invesmen desinaions. From he Granger causaliy view, he reurn of JAKISL and DJIM is driven by he reurn of FBMES in he shor run. Keywords: Islamic Sock Marke; Invesmen Porfolios; Co-inegraion; Granger Causaliy; Variance Decomposiion 1. Inroducion The sudy of sock markes inegraion has received subsanial ineress from various sakeholders paricularly afer he 1987 sock marke crash and he 1997-1998 Asian financial crises (Phuan e al., 2009; Marashdeh and Shresha, 2010). There are several reasons ha esablish he imporance of sock markes inegraion. Firs, i provides furher opporuniies in risk sharing among inegraed markes a a cos of aking away Corresponding auhor: Mohd Yahya Mohd Hussin, Faculy of Managemen and Economics, Universii Pendidikan Sulan Idris. E-mail: yahya@fpe.upsi.edu.my 17

Mohd Yahya, M.H., Yusni Anis. Y., Fidlizan, M., Azila, A.R., Emilda, H., & Nur Fakhzan, M. he diversificaion benefi of inernaional invesmen (Siskawai, 2011). Second, he informaion abou sock marke inegraion is hen used by invesors o se invesmen sraegies based on he poenial benefi ha can be gained by diversifying in differen sock markes (Kassim, 2010). Third, i promoes a vial condiion for a counry s financial secor o develop as a cener for inernaional financial secor (Reddy, 2003). Fourh, sock marke inegraion could generae a higher produciviy and economic growh across he economy by simulaing domesic savings and invesmens (Mohan, 2005). Fifh, i leads o financial sabiliy by promoing effecive operaion of financial inermediaries and resource allocaion (Triche, 2005). Sixh, marke liberalizaion reduces he cos of capial wihin he inegraed markes due o risk sharing beween he counry s residen and foreign invesors in he domesic economic aciviies (Tai, 2007). Numerous researches have sudied he convenional sock marke inegraion among counries (see, for examples, Raanapakorn and Sharma (2002), Yang e al. (2003), Narayan e al. (2004), Floros e al. (2005), and Majid e al. (2008). In comparison o he sudies of marke coinegraion in convenional sock markes, here is lile empirical research ha examines he long run equilibrium among Islamic sock markes. Thus, his paper will conribue significanly o he lieraure by providing new evidence on Islamic sock marke inegraion nexus in he specific conex of FTSE Bursa Malaysia Emas Shariah Index (FBMES), Jakara Islamic Index (JAKISL) and Dow Jones Islamic Marke Index (DJIM). The srucure of his paper is as followed: secion 2 overview of Islamic sock Markes, secion 3 presens lieraure review peraining o previous researches on he sock marke inegraion. Secion 4 describes he daa and variables used in his sudy. Secion 5 discusses research mehodology while Secion 6 presens and analyses he empirical resuls. Secion 7 concludes he findings. 2. Islamic Sock marke The Asian Financial Crisis 1997 is he urning poin for he Islamic finance indusry, as he invesors have sared o lose confidence in he exising convenional marke sysems and demand o swich o he Islamic markes. The growing demands for he Islamic invesmen producs are eviden in boh developed counries, paricularly in he UK, he US and Japan, and in developing counries such as Malaysia, Egyp and Sudan. Impressively, here are more han 600 Islamic financial insiuions operaing in more han 75 counries nowadays. Islamic banking and finance indusry is no longer seen as compeior o is counerpar, insead i is recognized as a viable alernaive o he convenional financial sysem as i has high poenial o be developed furher (Kassim, 2011). Basically, he funcion of he Islamic sock marke is similar o he convenional which is o provide a benchmark or performance indicaor for a group of companies socks in a paricular marke. On he 22 January 2007, Bursa Malaysia Berhad, in collaboraion wih FTSE Group (FTSE) he global index provider, launched he FTSE Bursa Malaysia EMAS Shariah Index (FBMES) and become a single broad Shariah benchmark index for Malaysia Shariah-complian invesmens. FBM Emas Shariah index design is in accordance wih FTSE inernaionally acceped index mehodology by aking he consiuens of he FTSE Bursa Malaysia EMAS Index, which has been free floa weighed and liquidiy screened, and overlays he Securiies Commission s Shariah Advisory Council s (SAC) screening mehodology o obain a highly ransparen and 18

Labuan e-journal of Muamala and Sociey, Vol. 7, 2013, pp. 17-27 invesable Shariah-complian index. As in he case of Indonesia, he Shariah-complian based invesmens performance is measured by he Jakara Islamic Index (JAKISL). JAKISL was launched on 1 January 1995 which consiss of 30 lised companies, approved by he Shariah Supervisory Board of Danareksa Invesmen Managemen. Formally, he rading index commenced on July 3, 2000 using a base value of 100 and January 1, 1995 as he base year (Rahim e al., 2009). While FBMES and JAKISL represen he Islamic marke indexes for Malaysia and Indonesia Shariah-complian invesmens respecively, he Dow Jones Islamic Marke (DJIM) is referred o he firs benchmark invesmen performance for he global Islamic index (Siskawai, 2011). Commencing in 1999, he DJIM include he Shariahcomplian socks from 34 counries. 3. Lieraure Review There have been few sudies focusing on he inegraion of Islamic and convenional sock markes boh regionally and globally, for examples, Roca e al. (1998), Wongbangpo (2000), Hee (2002), Azman-Saini e al. (2002), Dunis and Shannon (2005), Majid e al. (2007), Yusof and Majid (2007), Karim, Kassim and Arip (2010), Majid e al. (2008), and Siskawai (2011). Roca e al. (1998) invesigae he price linkage among five ASEAN markes (i.e. Indonesia, Malaysia, Singapore, Thailand and Philippines) boh in long-run and shorrun using coinegraion echnique based on Johansen procedure (1998), Granger Causaliy, Variance Decomposiion and Impulse Response funcion for 1988-1995 period. They conclude ha wih an excepion of Indonesia, ASEAN-5 markes were closely linked in he shor-run bu no in he long-run. Furhermore, he sudy shows ha Malaysia is he mos influenial marke while Singapore and Thailand are he markes wih he mos linkages wih oher markes. However, Indonesia has no linked a all wih any oher ASEAN markes. This indicaes ha here exis long run benefis for invesors from diversifying heir porfolio invesmens in hese five counries, paricularly in Indonesia. Dunis and Shannon (2005) examine wheher emerging markes sill offer inernaional invesors a valuable diversificaion benefi. The sudy covers emerging markes from Souheas Asia (i.e. Indonesia, Malaysia and Philippine) and Cenral Asia (i.e. Korea, Taiwan, China and India) wih he US and UK markes (as he reference of esablished markes). They found ha he overall resuls indicae ha inernaional diversificaion ino he emerging equiy markes considered is beneficial for US invesors during he period under sudy. In addiion hey explain he inernaional porfolio diversificaion can conribue o a reducion in sysemaic risks since i reduces domesic marke exposure ha canno be diversified. On he oher hand, Middleon e al. (2008) showed ha he beneficial opporuniies from invesing in Cenral and Easern European emerging markes are sill enormous, even during he financial crisis. Anoher sudy abou marke inegraion in ASEAN region is conduced by Wongbangpo (2000). The sudy reveals ha ASEAN sock markes, excep for he Philippines, have long-run co-movemen during he period 1985-1996. This means ha an effecive longerm diversificaion of an invesor s porfolio among hese sock markes canno be achieved. By employing correlaion and co-inegraion analysis, Hee (2002) uses monhly daa from December 1987 o December 1997 and finds no evidence of long-run 19

Mohd Yahya, M.H., Yusni Anis. Y., Fidlizan, M., Azila, A.R., Emilda, H., & Nur Fakhzan, M. relaionship among ASEAN sock markes (i.e. he Philippines, Singapore, Malaysia, Indonesia and Thailand). However, he correlaion analysis indicaes ha he markes are becoming more inegraed. Similarly, Worhingon e al. (2003) invesigae he price linkage among ASEAN sock marke in he period of January 1988 o February 2000. Six emerging markes (i.e. Taiwan, Indonesia, Malaysia, Korea, Thailand and he Philippines) and he hree developed markes (Singapore, Hong Kong and Japan) are included o he sudy. The resul shows ha he lower casual relaionship exiss beween hese emerging and developed sock markes. Again, boh sudies have esablished he fac ha regional porfolio diversificaion in ASEAN region is proved fruiful. Furhermore, Azman-Saini e al. (2002) examine he exisence of long-run relaionship among he ASEAN-5 (i.e. Indonesia, Malaysia, Singapore, Thailand and Philippines) equiy markes. Using weekly Morgan Sanley Composie Index (MSCI) indices obained from Kuala Lumpur Sock Exchange (KLSE) for period January 1988 - Augus 1999, he sudy finds ha here is co-inegraion among he ASEAN-5 equiy marke even hough no all markes share he common sochasic rends. The resuls also show ha Singapore sock marke is no affeced by oher markes excep from Philippines in he long-run, whereas Indonesian sock marke does no have long-run relaionship wih any oher markes. This implies ha here exis opporuniies for beneficial inernaional porfolio diversificaion wihin he conex of he ASEAN-5 equiy markes. Depared from previous sudies, Majid e al. (2007) focus on analysing he financial inegraion among eigh sock markes in he Organizaion of he Islamic Conference (OIC) counries. Of hese sock markes, four are from Middle Eas and Norh Africa (MENA) region (i.e. Turkey, Egyp, Oman, and Kuwai) and four are from Asian region (i.e. Malaysia, Indonesia, Bangladesh and Pakisan). The sudy also explores he inegraion beween hese sock markes and he hree larges sock markes in he world namely, US, UK and Japan. Using Vecor Auoregression (VAR) approach for he period January 2002 o March 2006, he resuls evidence ha while here is no coinegraion exiss among he MENA sock markes, he four Asian OIC sock markes are found o be coinegraed in he long run. Neverheless, hese eigh OIC sock markes are found o be co-inegraed wih he US, Japan and he UK sock markes, implying ha invesors can gain long-run risk reducion hrough porfolio diversifying in he MENA region bu no in he Asian region. Yusof and Majid (2007) employ he Generalized Auoregressive Condiional Hereoskedasiciy (GARCH) along wih VAR analysis o esimae he responses of boh convenional and Islamic sock markes in Malaysia o he condiional volailiy of moneary policy variables. Conforming o he Islamic principles, he sudy finds ha, from January 1992 o December 2000, ineres rae is significan for Malaysia s convenional sock marke, while insignifican for he Islamic counerpar. Similarly, Majid e al. (2008) sudy he inegraion among ASEAN-5 emerging sock markes and heir inerdependencies from he US and Japan. Employing a wo-sep esimaion, coinegraion and Generalized Mehod of Momens (GMM for period 1 January 1988-31 December 2006, hey found ha ASEAN-5 (i.e. Malaysia, Thailand, Indonesia, The Philippines, and Singapore) sock markes are moving owards more inegraion among hemselves or wih he US and Japan, especially afer financial crisis 20

Labuan e-journal of Muamala and Sociey, Vol. 7, 2013, pp. 17-27 1997. Furhermore, he resuls show ha he Granger causal relaions among he marke in he region kep changing over he period. The degrees of shor and long-run relaionship have increased significanly. The sudy also reveals ha each ASEAN marke is found o be inerrelaed wih he US and Japan in differen ways. In he more recen researches, Karim, Kassim and Arip (2010) examined he effecs of he US Subprime Crisis on he inegraion of seleced Islamic sock markes (i.e. Malaysia, Indonesia, US, UK and Japan). Employing Johansen-Juselius (JJ) coinegraion approach, he sudy failed o prove he exisence of coinegraion among hese Islamic sock marke for boh pre-crisis period (February 15, 2006 July 25, 2007) and during crisis period (July 26, 2007 - December, 2008). In conras, Siskawai (2011), founds he exisence of long erm equilibrium relaionship among Islamic Sock Marke in Malaysia, Indonesia and World during 2005 o 2007. 4. Daa Descripion The monhly daa for his sudy is rerieved from Bloomberg Daabase, spanning from January 2007 o May 2012. The logarihmic values of monhly marke indices have been used as he proxy of seleced marke. The definiions of each variable and he ime-series ransformaion are presened in Table 1. Table 1: Definiions and Transformaion of Variables No Variable Descripion Duraion Time Series Daa Transformaion Variable 1 FBMES The FTSE Bursa Malaysia Emas Shariah Index is a comprehensive range of real-ime indices, which cover all eligible companies lised on he Bursa Malaysia 2 JAKISL Jakara Islamic Index (Jakisl) is marke index for syariah line equiies lised in Indonesian sock exchange 3 DJIM Dow Jones Islamic Marke (DJIM) will be a benchmark of global Islamic index Monhly sock price ( Jan 2007-May 2012) Monhly sock price ( Jan 2007-May 2012) Monhly sock price ( Jan 2007-May 2012) LNFBMES FBMES( ) ( ) = Log FBMES 1 JAKISL( ) ( ) LNJAKISL = Log JAKISL 1 LNDJIM DJIM ( ) ( ) = Log DJIM 1 Source Bloomberg Bloomberg Bloomberg 21

Mohd Yahya, M.H., Yusni Anis. Y., Fidlizan, M., Azila, A.R., Emilda, H., & Nur Fakhzan, M. 5. Mehodology We adoped a Vecor Auoregressive (VAR) model o examine he inegraion of Islamic sock marke index beween FBMES, JAKISL and DJIM, in which can be wrien as follow: FBMES : α 0+ α1jakisl + α2djim + µ (1) Our aim is o invesigae he marke co-inegraion among FBM Emas Syariah Index (FBMES), Jakara Islamic Index (JAKISL) and Dow Jones Islamic Marke index (DJIM). Deriving from equaion 1, he esimaion of expanded model of he inegraion of hese Islamic sock marke indexes is: FBMES A = JAKISL A DJIM A 1 2 3 FBMES + R( L) JAKISL DJIM 1 1 1 e + e e where R is 3 x 3 marix polynomial parameer esimaors, (L) is lag lengh operaors, A is an inercep, and e is a Gaussian error vecor wih mean zero and Ω is a Varian marix. To properly specify he VAR model, we follow he sandard procedure of ime series analyses. Firs, we apply he commonly used augmened Dickey-Fuller (ADF) and Phillips-Perron (PP) uni roo ess o deermine he variables' saionariy properies or inegraion order. Briefly saed, a variable is said o be inegraed of order d, wrien 1(d), if i requires differencing d imes o achieve saionariy. Thus, he variable is nonsaionary if i is inegraed of order 1 or higher. Classificaion of he variables ino saionary and non-saionary variables is crucial since sandard saisical procedures can handle only saionary series. Moreover, here also exiss a possible long-run comovemen, ermed coinegraion, among non-saionary variables having he same inegraion order. In his sudy, he lag is deermined based on Akaike Informaion Crierion (AIC) which is commonly used for he VAR model. Second, we apply a VAR-based approach of he coinegraion es suggesed by Johansen (1988) and Johansen and Juselius (1990) o invesigae he long run relaionships among hese variables. The coinegraion es is based on he maximum likelihood esimaion of he VAR model. If hese variables were no coinegraed, he sandard Granger causaliy es would be applied on he firs difference of hese variables. If hese variables were coinegraed, a Granger causaliy es would be conduced based on a VAR wih he inroducion of an error correcion erm following he suggesion of Granger (1986). Granger causaliy ess are performed o idenify he exisence and naure of he causaliy relaionship beween he variables. Finally, he Variance Decomposiion (VDC) is performed o obain he degree of exogeneiy beween variables ouside of he sampling period. The VDC shows he percenage of forecas error variance for each variable ha is aribued o is own shocks and o flucuaions in he oher variables in he sysem. 1 2 3 (2) 22

Labuan e-journal of Muamala and Sociey, Vol. 7, 2013, pp. 17-27 6. Empirical Resuls Table 2 provides he summary saisic of he Islamic sock reurns (i.e. sock prices in firs difference). FBMES has been he mos acive and profiable, showing he highes average daily reurns of 9.071. This is followed by DJIM a 7.308 and JAKISL a 6.017. However, compared o oher marke indexes, JAKISL reurn (as refleced by he sandard deviaion) is very high and i also has he highes volailiy 0.286 which is commensurae o is reurn. The smalles risk is experienced by FBMES 0.181. The negaive value of skewness indicaes ha he series disribuions are skewed o he lef. All sock markes have posiive kurosis value wih he highes value is DJIM a 3.840. This indicaes ha he disribuion of sock marke is lepokuric han he normal disribuion. The Jarque-Bera es rejecs normaliy for all disribuion. Table 2: Descripive Saisics LNFBMES LNJAKISL LNDJIM Mean 9.071 6.017 7.308 Median 9.104 6.095 7.364 Maximum 9.291 6.3700 7.583 Minimum 8.642 5.266 6.702 Sd. Dev. 0.181 0.286 0.217 Skewness -0.971-1.088-1.267 Kurosis 3.240 3.421 3.840 Jarque-Bera 10.382 13.308 19.323 Table 3 summarizes he resuls of boh Augmened Dickey-Fuller (ADF) and Phillip Perron (PP) ess for all variables. As shown below, he null hypohesis of nonsaionariy for he ADF and PP ess is acceped for all variables, indicaing ha all variables are non-saionary in level bu become saionary afer firs differencing. Thus, hey are inegraed of order 1, or I(1). Table 3: Uni Roo Tes Resuls Tes ADF PP Variables Level Firs Difference Level Firs Difference Trend Trend & Inercep LNFBME S -1.611 (3) -2.317 (3) LNJAKIS -2.222-2.777 L (3) (3) LNDJIM -1.784-1.881 (1) (3) Noe: *denoe significan a 1% Trend -6.173-5.673-5.591 Trend & Inercep -6.145-5.628-5.539 Trend -1.237 (4) -1.734 (4) -1.686 (2) Trend & Inercep -1.612 (4) -2.015 (4) -1.799 (4) Trend -6.332 (4)* -5.802 (4)* -5.545 (2)* Having esablished ha he variables are saionary and have he same order of 23 Trend & Inercep -6.294 (4)* -5.763 (4)* -5.491 (4)*

Mohd Yahya, M.H., Yusni Anis. Y., Fidlizan, M., Azila, A.R., Emilda, H., & Nur Fakhzan, M. inegraion, we proceeded o es wheher hey were co-inegraed. To achieve his, he Johansen Mulivariae Co-inegraion es was employed. The resuls of he Johansen s Trace and Max Eigen-value ess are shown in Table 4, where i is found ha here is no co inegraion among variables. This can be observed from he values of race saisic and Max Eigen value, which are smaller han heir criical values, respecively. Therefore, i can be concluded ha here is no long-run or equilibrium relaionship beween FBMES, JAKISL and DJIM. Based on he resul, hence, i can be concluded ha he Islamic sock markes of Malaysia does no inegrae wih Indonesia s, as well as wih he world markes in he long run. This will creae rooms for invesors o diversify heir invesmen porfolios, which pus Malaysia as one of heir favoured invesmen desinaions. Mode l Lag Leng h=2 # Null Hypo hesis Table 4: Johansen Tes of Coinegraion Saisic Criical Maximu Criical Variables al Value m Eigen Value Trace (5%) Saisic (5%) al Trace Resuls r 0 29.013 29.797 19.462 21.131 LNFBMES Trace and Max r 1 9.551 15.494 8.196 14.264 LNJAKISL Eigen r 2 1.354 3.841 1.354 3.841 LNDJIM C saisics showed no coinegraion vecors * :Denoe significance a 5% respecively : Criical Value obained from Oserwald-Lenum (1992) #: lag lengh based on Akaike Informaion Crierion (AIC) Table 5: Granger Causaliy Tes Resul Null Hypohesis: F-Saisic P-Value LNJAKIS does no Granger Cause LNFBMES 0.910 0.343 LNFBMES does no Granger Cause LNJAKIS 4.449 0.039** LNDJIM does no Granger Cause LNFBMES 5.666 0.020** LNFBMES does no Granger Cause LNDJIM 11.264 0.001* LNDJIM does no Granger Cause LNJAKIS 0.760 0.386 LNJAKIS does no Granger Cause LNDJIM 2.724 0.103 Noe: * significan a 1% **significan a 5% *** significan a 10% Table 5 shows he Pairwise Granger Causaliy Tes for he log series of FBMES, JAKISL and DJIM. The resuls of he Granger causaliy es show wo significan causal relaionships. Firs, here is a bi-direcional causaliy resul beween global Islamic sock marke and Malaysian Islamic sock marke (DJIM and FBMES). Second, here is a significan uni-direcional causaliy relaionship beween FBMES and JAKISL suggesing ha he reurn of Islamic sock marke in Indonesia significanly affeced by he reurn of Islamic sock marke in Malaysia. This resul leads o a conclusion ha he reurn of JAKISL and DJIM is driven by he reurn of FBMES. The paern of his causal relaionship can be simplified as in figure 1. 24

Labuan e-journal of Muamala and Sociey, Vol. 7, 2013, pp. 17-27 Figure 1: Analysis on Shor Term Granger Causal Relaionship LNDJIM LNJAKISL LNFBMES Indicaor: uni-direcional causaliy bi-direcional causaliy The resuls of he VDC analysis are presened in Table 6 for a 24-monh horizon. I is clear ha FBMES is explained by is own shock over 86 percen. Only 10.4 percen and 3.4 percen of he variaions are conribued by DJIM and JAKISL respecively. For JAKISL reurn, over 87 percen of he variaions are conribued by FBMES and DJIM. Among boh he variaions, FBMES is he mos significan variable, explaining abou 73.7 percen of he JAKISL forecas error variance. Furhermore, over 76 percen of he variaions of DJIM reurn are explained by variaions of FBMES while only 0.8 percen is explained by JAKISL. This resul is consisenly wih finding of Granger causaliy es. Variance Decomposiio n of LNFBMES LNJAKISL LNDJIM Table 6: Resuls Of Variance Decomposiions Analysis Period Innovaions in (Monhs ) LNFBMES LNJAKISL LNDJIM 1 41.077 15.390 43.531 4 63.271 8.424 28.303 8 82.786 5.088 12.124 12 85.868 4.039 10.091 24 86.096 3.496 10.407 1 0.000 45.081 54.918 4 27.218 38.629 34.151 8 61.473 22.368 16.158 12 70.010 16.172 13.817 24 73.736 12.525 13.737 1 0.000 0.000 100.000 4 19.160 0.040 80.799 8 56.861 0.269 42.868 12 70.306 0.509 29.183 24 76.582 0.889 22.527 7. Conclusions The objecive of his paper is o invesigae he inegraion among Islamic sock markes in Malaysia, Indonesia and World. Using VAR esimaion echnique, his paper found 25

Mohd Yahya, M.H., Yusni Anis. Y., Fidlizan, M., Azila, A.R., Emilda, H., & Nur Fakhzan, M. ha here is no co-inegraion relaionship (long erm equilibrium) beween hese Islamic indices implying ha he Malaysian Islamic sock markes does no inegraed wih Indonesian Islamic sock marke as well as wih he Islamic world sock markes in he long run. This will creae rooms for boh local and inernaional invesors o diversify heir Islamic invesmen porfolios, which will pu Malaysia as one of heir invesmen desinaion. On he oher hand, he resuls of he Granger causaliy es show a significan bi-direcional causaliy beween global Islamic sock marke and Malaysian Islamic sock marke (DJIM and FBMES) and a significan uni-direcional causaliy relaionship beween FBMES and JAKISL. Therefore, hese scenario suggesing ha he reurn of Islamic sock marke in Indonesia is significanly affeced by he reurn of Islamic sock marke in Malaysia. This resul, hence leads o a conclusion ha he reurn of JAKISL and DJIM is driven by he reurn of FBMES in he shor run. 8. References Azman-Saini, W. N. M., Azali, M., Habibullah, M. S., and Mahews, K. G. (2002). Financial Inegraion and he ASEAN-5 Equiy Markes, Applied Economics, Vol. 34, pp. 283-288. Dunnnis, C. L. and Shannon, G. (2005). Emerging Markes of Souh-Eas Asia and Cenral Asia: Do They Sill Offer a Diversificaion Benefi?, Journal of Asse Managemen, Vol. 6, No. 3, pp. 168-190. Floros, C. (2005). Price Linkages beween he US, Japan and UK Sock Markes, Financial Markes and Porfolio Managemens, Vol. 19, No. 2, pp. 169-178. Granger, C. W. J. (1986). Developmens in he Sudy of Coinegraed Economic Variables, Oxford Bullein of Economics and Saisics, Vol. 48, pp. 213-228. Hee, N. T. (2002). Sock Marke Linkages in Souh Eas Asia, Asian Economic Journal, Vol.16, No. 4, pp. 353-377. Johansen, S. (1988). Saisical Analysis of Coinegraion Vecors, Journal of Economic Dynamic Conrol, Vol. 12, pp. 231-254. Johansen, S. and K. Jusellius (1990). Maximum Likelihood Esimaion and Inference on Coinegraion - Wih Applicaions o he Demand for Money, Oxford Bullein of Economics and Saisics, Vol. 52, pp. 169-210. Bakri Abdul Karim, Nor Akila Mohd Kassim, and Mohammad Affendy Arip (2010). The Subprime Crisis and Islamic Sock Markes Inegraion, Inernaional Journal of Islamic and Middle Easern Finance and Managemen, Vol. 3, No. 4, pp. 363-371. Kassim, S. H. (2010). Global Financial Crisis and Inegraion of Islamic Sock Markes in Developed and Developing Counries, V. R. F Series, No. 461. Majid, M. S. A., Yusof, R. M., Razal, A. N. (2007). Dynamic Financial Linkages among Seleced OIC Counries, Journal of Economic Cooperaion among Islamic Counries. Vol. 28, No. 2, pp. 25-56. Majid, M. S. A., Meera, A. K. M., and Omar, M. A. (2008). Inerdependence of ASEAN-5 Sock Markes from he US and Japan, Global Economic Review, Vol. 37, No. 2, pp. 201-225. Marashdeh, H. A. and Shresha, M. B. (2010). Sock marke inegraion in he GCC counries, Inernaional Research Journal of Finance and Economics. No. 37, pp. 102-115. Middleon C. A. J, Fifield S. G. M, and Power D. M. (2008). An Invesigaion of he Benefis of Porfolio Invesmen in Cenral and Easern European Sock 26

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