Short-Term Shocks and The Resilience of Islamic Stocks: Evidence From The Dow Jones Islamic Turkey Index

Abstract

This study examines how internal factors, such as exchange rates,interest rates, and inflation, and external variables, global oil andgold prices, the 2008 financial crisis, and the COVID-19 pandemic,affect the performance of Shariah-compliant stocks listed on the DowJones Islamic Turkey Index. Although Islamic equity markets aregaining prominence, limited research addresses their response tomacroeconomic shocks, particularly in emerging economies. Thisstudy aims to fill that gap by evaluating both short-term and long-term effects of selected variables using monthly data from January2007 to September 2024. The Autoregressive Distributed Lag (ARDL)model is employed to identify cointegration and dynamicrelationships among variables. The results indicate a long-runequilibrium among variables but show no significant long-termeffects on index performance. In contrast, short-term analysis revealsthat exchange rate fluctuations and the COVID-19 pandemic have asignificant and negative impact on Islamic stock performance, withrespective impacts of up to 48% and 14%. The findings suggest thatwhile Islamic stocks demonstrate resilience over time, they remainvulnerable to short-term shocks. This highlights the critical role ofexchange rate volatility and pandemic-driven uncertainty in shapinginvestor confidence. The study contributes to the Islamic financeliterature by offering empirical insights into how macroeconomicdynamics influence Islamic stock indices. It provides practicalguidance for investors and policymakers seeking to enhance riskmanagement and develop resilient investment strategies in Shariah-compliant markets.