Long-run Relationship and Short-run Dynamics between Composite and Islamic Index in the Capital Market of Indonesia
Sylva Alif Rusmita(1), Ikram Nur Muharam(2) , Lina Nugraha Rani (3), Eko Fajar Cahyono (4)

Faculty of Economics and Business, Universitas Airlangga, Surabaya(1,3,4) and Faculty of Economics and Business, Universitas Padjadjaran Bandung(2)

Abstract

This paper tries analysis the relationship between the Islamic and composite index. Using the VECM method, it shows that there is a co-integration among the variables JKSE and JII. Furthermore, the results show that only JII that have a significant a long-run relationship with the JKSE. In case of short-run relationship, JII do not significantly affect JKSE, while JII was significantly influenced by JKSE in lag 2 and JII in lag 1. The error correction parameters also indicate that there is an adjustment from short to long term for all variables. Otherwise, Impulse Response Function shows that the shock on JII will negatively affect JKSE; the impact will be felt for almost a year. In addition, the Variance Decomposition analysis shows that contributions from JII to JKSE tend to increase over time. The influence of JKSE to JII in the long run indicates that within a certain time the risk of Islamic and conventional shares tends to be the same. This means, that there is no significant difference between Islamic stock portfolio and conventional. This can happen because in Indonesia, between Islamic and conventional still in the same market, and similar product. Therefore, hopefully there will be a more significant difference so that investors can choose between Islamic and conventional portfolio.

Keywords: JKSE, Islamic Index, Cointegration, VECM

Topic: Financial Management and Accounting