THE INTERNATIONAL MARKET INTERDEPENDENCE OF ISLAMIC STOCK INDEXES IN SOUTH EAST ASIA

ABSTRACT

This study tries to investigate the international market interdependence (return and volatility spillover) and correlation between Kuala Lumpur Syariah Index and Jakarta Islamic Index by using bivariate VAR GJR-GARCH models. The results show that there is significant unidirectional return and volatility spillover from Kuala Lumpur Syariah Index and Jakarta Islamic Index.  In addition, the results present evidence that asymmetric effects is not exist in the volatility of both markets and the volatility persistence in each market is high. Finally, the study also highlights that the correlation between the two markets investigated is low. This finding suggest that the Kuala Lumpur Syariah Index and Jakarta Islamic Index offer potential of diversification to the investors who want to create an Islamic portfolio investment

Keywords:  International market interdependence, bivariate VAR GJR-GARCH model, Islamic financial markets, asymmetric volatility, volatility persistence.