Linkages between TASI and S&P CNX NIFTY Shariah Index – A Co-integration & Causal Approach

Abstract

This paper investigates the long run relationship and short term causal dynamic linkages between Saudi Arabia Tadawul stock market index (TASI) and Shariah index of Indian National Stock Exchange (S&P CNX Nifty Shariah). The daily time series data for 5 years are used (i.e. from May 1, 2010 to April 30, 2015) for empirical analysis. Augmented Dickey-Fuller unit root test has been applied to determine the stationarity of time series. Johansen Co-integration test is used to investigate the long run relationship while Granger Causality test is used to check the short term causality linkages. The study concludes that all series are integrated of first order i.e. I (1) and there is no long run relationship between TASI and S&P CNX Nifty Shariah indices. Also, the results of Granger Causality show that there are no causal linkages between the two indices. Hence, there exist portfolio diversification opportunities for long terms as well as short term investors in these two stock markets.