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Abstract

Purpose: The study explores the relationship between the volatility of stock return of markets (Islamic & conventional) and macroeconomic factors by using GARCH in Mean (1,1) model during global financial crisis.
Design/Methodology/Approach: monthly data for the period from 04 Jan, 2005 to 31st Dec, 2015. The Islamic stock markets (Dow Jones Islamic Market Malaysia (DJIM), Dow Jones Islamic Market Indonesia (DJII) & Dow Jones world Islamic Index (DJWI)-Benchmark), Conventional stock markets (Shanghai Stock Exchange (SSE),Bombay Stock Exchange (BSE) & Pakistan Stock Exchange (PSE) and Macroeconomic factors (Inflation, Interest Rate, Oil prices and Industrial Production) are taken into consideration.
Findings: The results explored that inflation rate influenced the returns of conventional stock markets than Islamic stock markets. Moreover, the volatility components for macroeconomic factors i.e. inflation, interest rate and oil prices are more volatile but larger to industrial production during global financial crisis.
Implications/Originality/Value: However, the frequency of market volatility for Islamic stock market is lower than conventional stock markets that mean that the investment in Islamic stock markets seems to be safe flight than conventional stock markets during global financial crisis.