Co-integration and Causality: Dynamic Linkages between Conventional and Islamic Indices

Abstract

The aim of the current study is to examine the long-run and short-run associations among the indices of Islamic and Conventional stock market of India. The Nifty 500 and Nifty Shariah 500 are used as representative of Conventional and Islamic indices, respectively. The study uses daily data for the period 2013–2022. Econometric models such as the Unit root test, VECM, Co-integration test, Granger causality tests, Variance decomposition and IRFs are used to achieve objective of the study. The study found that two indices are coupled in the long-run and short-run and a bi-directional causal association is spotted between them. These results are important and useful for portfolio managers, stock market investors, market participants, and policy makers for making economic and investment decisions.