Stock returns-inflation nexus in Indonesia: Evidence from conventional and Islamic stocks
Abstract
Objective: The objective of the article is to empirically explore the effects of actual, expected, and unexpected inflation on conventional and Islamic stock markets in Indonesia.
Research Design & Methods: In the first stage, an auto-regressive integrated moving average (ARIMA) model is utilized to measure expected and unexpected inflations. In the second stage, a dynamic ordinary least squares (DOLS) estimator is used to explore the stock return-inflation nexus over the period from 1999 to 2019.
Findings: The study documented that Islamic stock returns are independent of inflation following the Fisher hypothesis. Meanwhile, a negative relationship between stock returns and inflation is found in the conventional stock market. However, the Fama proxy hypothesis was incapable of describing the negative conventional stock returns-inflation relation in its entirety. However, our findings support the Mundell-Tobin hypothesis.
Implications & Recommendations: Our findings imply that the Islamic stock market of Indonesia provides a full hedge against actual, while the conventional stock market does not.
Contribution & Value Added: This study is the first attempt in the Islamic finance literature to comparatively explore the effects of inflation, expected, and unexpected inflation on conventional and Islamic stock markets from the perspective of the emerging Indonesian economy.
Keywords
Fisher hypothesis; Fama proxy hypothesis; Islamic stock; hedge
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Sabang College of Economics - Sekolah Tinggi Ilmu Ekonomi Sabang (STIES) in Banda Aceh Indonesia
https://orcid.org/0000-0002-9056-3880
Senior Lecturer at the Department of Management, Sekolah Tinggi Ilmu Ekonomi Sabang (STIES), Banda Aceh, Indonesia. Ph.D. in Economics (2016); Master in Economics (1997); and Bachelor of Economics (1986) were all from Universitas Syiah Kuala, Indonesia. His research interests include macroeconomics, regional economics, and economic development.
Correspondence to: Dr. Yahya, S.E., M.Si, Department of Management, Sekolah Tinggi Ilmu Ekonomi Sabang (STIES), Banda Aceh, Indonesia, e-mail: yahya_kobat@rocketmail.com
ORCID https://orcid.org/0000-0002-9056-3880.
Universitas Syiah Kuala Indonesia
http://orcid.org/0000-0003-3558-8783
Associate Professor at the Department of Islamic Economics, Faculty of Economics and Business, Universitas Syiah Kuala, Indonesia. Ph.D. in Financial Economics (2015); Master in Economics (2018) from International Islamic University Malaysia; and Bachelor of Management Sciences (2005) from Universitas Syiah Kuala, Indonesia. His research interests include financial economics, Islamic economics, banking, and finance, and applied econometrics. He has published 50 articles in the Scopus Indexed Journals.
Correspondence to: Dr. M. Shabri Abd. Majid, Faculty of Economics and Business, Universitas Syiah Kuala, Darussalam, Banda Aceh, 23111, Indonesia, e-mail: mshabri@unsyiah.ac.id
ORCID http://orcid.org/0000-0003-3558-8783.
Universitas Syiah Kuala Indonesia
https://orcid.org/0000-0003-0350-8451
Hafasnuddin
Associate Professor at the Department of Management, Faculty of Economics and Business, Universitas Syiah Kuala (USK), Indonesia. Ph.D. in Islamic Banking Marketing (2008) from Universitas Padjajaran, Indonesia; Master in Marketing (1994) from University of Illinois, USA; and Bachelor of Management Sciences (1986) from USK, Indonesia. His research interests include Islamic banking marketing, Islamic management, and Islamic economics, banking, and finance. He has published many articles in the reputable international journals.
Correspondence to: Dr. Hafasnuddin, SE., MBA, Faculty of Economics and Business, Universitas Syiah Kuala, Darussalam, Banda Aceh, 23111, Indonesia, e-mail: hafas50@yahoo.com
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