Investigating the Impact of Business Cycles and Macro-Economic Variables on Time Scaled Volatility of Islamic Stock Indices

Abstract

The purpose of the current study is to investigate the relationship among Real Business cycles, Islamic stock indices, and selected macro-economic variables of Pakistan, Indonesia, and Bangladesh. In this study Panel ARDL approach has been used. The findings confirm that real business cycles play a significant role in explaining the volatility of the Islamic stock indices. It shows that in the period of economic growth, they prove to be less volatile and become stagnant during the economic downturn. At the same time, oil pricing, internationalization, inflation and the banking sector also significantly impact the volatility of Islamic stock indices. The aftermath of the study suggests the vitality and importance of the Islamic stock market and also endorses that Islamic stock indices could be considered an integral tool to strengthen the economic stability.