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