Does Shifts in Economic Policy Uncertainty have Symmetric or Asymmetric Effects on Islamic Equity Return?

  • Ghulam Mustafa Shaikh, Dr. Irfan Ali Mirani, Sajjad Hussain,Sanaullah Khuwaja, Dr. Faiz Muhammad Khuwaja


This study attempts to examine the short-run and long-run dynamics between Shifts in Economic Policy Uncertainty and returns of  S&P 500 Islamic index,  by co-integration,  bounds testing  ARDL  and NARDL approaches, accounting for few control (macroeconomic) variable such as Real Exchange Rate, Money Supply, and Consumer Price Index. The main contribution of this paper is the usage of prominent Islamic Index S&P500 returns with shifts in EPU in US context (which is absent in the literature) is decomposed into a partial sum of positive as well as negative changes to examine the shifts in Economic Policy Uncertainty have either symmetric or asymmetric effects on the return of  Islamic Index. The analysis has captured monthly data throughout 2005M01  to  2019M12  of the US Economy. The results of this paper portray that the effect of  Economic  Policy  Uncertainty changes is asymmetric on returns of the S&P Islamic index in the short-run and symmetric in the long-run. We found the among macroeconomic variables, except Money Supply,  Real Exchange Rate, and Consumer Price Index have a significant effect in the short-run whereas, in long run, all variables have a significant effect on the returns. These results do have implications for both policymakers and market participants.