Resilience under the tapering shadow: A study on the dynamics of shariah stock markets in Indonesia and Malaysia

The initiation of tapering, sparked by heightened inflation in the United States, reverberates across global markets, with notable implications for Indonesia. This study delved into the nuanced impact of tapering on Sharia-compliant stocks in both Indonesia and Malaysia. The rationale behind selecting Sharia stocks for analysis lies in their composition, featuring companies boasting low debt-to-asset and equity ratios, thereby positing robust resilience in the face of the Federal Reserve’s implementation of tapering. Employing a time series dataset with a weekly sampling period spanning from January to September 2022, the analysis adopted the Error Correction Model (ECM) within a multiple regression framework to circumvent potential spurious regression pitfalls. The results of this study indicate that the impact of tapering off policy in Indonesia has a positive impact in the short term and long term, while in Malaysia it tends to be insignificant in the short term and has a positive impact from the US 10-year bond yield variable and a negative impact from US 1-Year Treasury Bills. This result is interesting because it differs from the general theory. The causal factors include the agility of the Indonesian central bank in maintaining the benchmark interest rate spread with the Fed, the economic stability of both countries, and the increasing trend of coal, with Indonesia being one of the largest producers of the commodity. Investors, in navigating these intricate dynamics, may find strategic insights derived from this research invaluable for shaping their investment decisions. while government policymakers may use them as a reference for shaping policies related to Sharia stock investments, including the incorporation of artificial intelligence.