Dynamic Linkages between Newly Developed Islamic Equity Style Indices: Is Growth Style More Influential Than Value Style?

Abstract

This study investigates the dynamic linkages between the newly developed Islamic equity style indices from stocks listed in FTSE EMAS Shariah Index from May 2006 to May 2017. Based on the Vector Autoregressive model (VAR), the results indicate: Firstly, there are short-run dynamics between Islamic equity style indices. Notably, growth style indices are more influential than value style; Secondly, the Large Growth index is the most influential, followed by Medium and Small Growth; Thirdly, Large Growth index precedes Large Value index. These results reaffirm that growth style is more receptive than value style with respect to new information due to institutional investors who prefer growth stocks from blue-chip companies, GLCs and GLICs. This study also proposes the effect of retail investors to explain information flow from small-cap to medium, and medium to largecap. Robustness check with Toda-Yamamoto procedure yields similar result with VAR model except for one short-run relationship from Large Growth to Large Value. Our results redefine the importance of growth style and support new product differentiation in the quest to develop the Islamic fund management industry