Financial crisis and segmentation of Islamic stock market

This paper examines the impact of global financial crisis on the Malaysian Islamic stock market integration with the world. We use the International Capital Asset Pricing Model (ICAPM) and moving average to derive the integration index. The results show that the degree of market integration is time-varying. We found evidence that during the crisis, the Malaysian Islamic stock market was obviously segmented from the world market. Therefore the Malaysian Islamic stock market provides opportunity for the potential benefits from international portfolio diversification during the crisis. The prohibition of riba (interest), maysir (gambling) and gharar (uncertainties) along with Islamic values of justice, fairness and avoidance of exploitation are some of possible reason to avoid the Islamic stock market from the financial crisis.