Irfan Syauqi Beik, Lecturer and Researcher at the Department of Economics, Bogor Agricultural University, Indonesia
Wisnu Wardhana, Postgraduate Student of the International Islamic University Malaysia, Researcher of ISEFID (Islamic Economic Forum for Indonesia’s Development)
Abstract: "The financial crisis, which was triggered by the subprime credit in the United States, is probably the most severe crisis for the last century. It has affected many countries in the world including Indonesia. In spite of worsening financial market in recent months, Indonesia has a great potency to be a hub for international Islamic finance. This paper attempts to analyze Indonesia’s Islamic Stock Market, namely Jakarta Islamic Index (JII), in relation with other Islamic as well as conventional stock markets in Malaysia and the United States, especially during the subprime crisis which started in early 2006. This research uses daily closing data of stock price indices obtained from Bloomberg database from January 1, 2006 until December 31, 2008. It employs time series analysis of cointegration and impulse response function. The results show that there is no long run relationship between Indonesia’s capital market and both Malaysia and the US markets. For investors, the results will give them choices for their investment portfolio. Meanwhile, in Indonesia’s perspective, this should be an opportunity for promoting its capital market as the potential destination for profitable investment. In the short run, the JII is significantly affected by the shock or disturbance taking place in the other markets. However, the results also indicate that the JII is the least volatile and more stable market."
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