Global Journal of Economic and Finance Research

Purpose:

This study examines the transmission of trade policy shocks from the Trump tariff era to Indonesia’s Islamic capital market, focusing on the Indonesia Sharia Stock Index (ISSI), Jakarta Islamic Index 70 (JI70), and Jakarta Islamic Index (JII).

Materials and Methods:

Using daily data from April to September, the study applies return analysis, abnormal return estimation, and cumulative abnormal return (CAR) calculations to assess the market response to U.S.–China trade tensions.

Results:

Findings show that Islamic indices generally move in line with the broader IDX Composite, though trade tensions increased volatility and caused short-term fluctuations, particularly in June and August. ISSI displayed significant abnormal returns compared to the composite index, suggesting greater sensitivity to global trade shocks. Despite this volatility, all indices recorded positive CAR values—ISSI (0.1250), JI70 (0.1099), and JII (0.0909)—indicating sustained medium-term resilience.

Conclusion:

Indonesia’s Shariah-compliant equity market is affected by international trade policies but remains stable and competitive. These findings highlight the resilience of Islamic indices in emerging markets and provide insights for policymakers and investors on diversification and strengthening Islamic capital market performance.

Trump tariffs, transmission, emerging economies, Shariah stock index, Indonesia.

1. Abedifar, P., Molyneux, P., & Tarazi, A. (2013). Islamic banks and risk: A global perspective. Journal of Banking & Finance, 37(12), 4506–4520. https://doi.org/10.1016/j.jbankfin.2013.07.020
2. Abdullah, F., Hassan, T., & Mohamad, S. (2017). Investigation of performance of Shariah-compliant companies in Malaysia during global financial crisis. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 134–150. https://doi.org/10.1108/IMEFM-07-2016-0099
3. Al-Khazali, O., Lean, H. H., & Samet, A. (2014). Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach. Pacific-Basin Finance Journal, 28, 29–46. https://doi.org/10.1016/j.pacfin.2013.09.003
4. Alam, N., Hassan, M. K., & Haque, M. A. (2016). Are Islamic bonds different from conventional bonds? International evidence from capital market tests. Borsa Istanbul Review, 16(4), 219–232. https://doi.org/10.1016/j.bir.2016.06.001
5. Amiti, M., Redding, S. J., & Weinstein, D. E. (2019). The impact of the 2018 trade war on U.S. prices and welfare. Journal of Economic Perspectives, 33(4), 187–210. https://doi.org/10.1257/jep.33.4.187
6. Azwar, A., & Suryanto, T. (2021). The impact of U.S. trade war on Indonesian financial markets: Evidence from stock, bond, and currency markets. Jurnal Ekonomi dan Studi Pembangunan, 22(2), 123–135. https://doi.org/10.18196/jesp.v22i2.10377
7. Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
8. Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking & Finance, 37(2), 433–447. https://doi.org/10.1016/j.jbankfin.2012.09.016
9. Bown, C. P., & Kolb, M. (2020). Trump’s trade war timeline: An up-to-date guide. Peterson Institute for International Economics. https://www.piie.com/blogs/trade-and-investment-policy-watch/trump-trade-war-china-date-guide
10. Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3–31. https://doi.org/10.1016/0304-405X(85)90042-X
11. Caldara, D., Iacoviello, M., Molligo, P., Prestipino, A., & Raffo, A. (2020). The economic effects of trade policy uncertainty. Journal of Monetary Economics, 109, 38–59. https://doi.org/10.1016/j.jmoneco.2019.11.002
12. Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (1997). The econometrics of financial markets. Princeton University Press.
13. Chapra, M. U. (2016). The future of economics: An Islamic perspective. Islamic Economics Institute, King Abdulaziz University.
14. Crowley, M. A. (2019). Trade war: The clash of economic systems endangering global prosperity. Centre for Economic Policy Research Press.
15. Dewandaru, G., Rizvi, S. A. R., Masih, R., Masih, A. M. M., & Alhabshi, S. M. (2014). Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis. Economic Systems, 38(4), 553–571. https://doi.org/10.1016/j.ecosys.2014.03.003
16. Diebold, F. X., & Yilmaz, K. (2014). On the network topology of variance decompositions: Measuring the connectedness of financial firms. Journal of Econometrics, 182(1), 119–134. https://doi.org/10.1016/j.jeconom.2014.04.012
17. El-Khatib, R., & Hatemi-J, A. (2017). The impact of shocks to equity markets on Islamic and conventional indices: A comparison. Emerging Markets Review, 30, 117–131. https://doi.org/10.1016/j.ememar.2016.10.003
18. Fajgelbaum, P. D., Goldberg, P. K., Kennedy, P. J., & Khandelwal, A. K. (2020). The return to protectionism. Quarterly Journal of Economics, 135(1), 1–55. https://doi.org/10.1093/qje/qjz036
19. Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2), 383–417. https://doi.org/10.2307/2325486
20. Hussein, K., & Omran, M. (2005). Ethical investment revisited: Evidence from Dow Jones Islamic indices. Journal of Investing, 14(3), 105–124. https://doi.org/10.3905/joi.2005.580557
21. Ibrahim, M. H. (2019). Oil and food prices in Malaysia: A nonlinear ARDL analysis. Agricultural and Food Economics, 7(1), 1–14. https://doi.org/10.1186/s40100-019-0136-6
22. Kolari, J. W., & Pynnönen, S. (2010). Event study testing with cross-sectional correlation of abnormal returns. Review of Financial Studies, 23(11), 3996–4025. https://doi.org/10.1093/rfs/hhq072
23. Kothari, S. P., & Warner, J. B. (2007). Econometrics of event studies. In B. E. Eckbo (Ed.), Handbook of Corporate Finance: Empirical Corporate Finance (Vol. 1, pp. 3–36). Elsevier. https://doi.org/10.1016/B978-0-444-53265-7.50015-9
24. Li, W., Balcilar, M., & Gupta, R. (2020). The role of economic policy uncertainty in predicting equity markets: Evidence from emerging economies. Finance Research Letters, 35, 101303. https://doi.org/10.1016/j.frl.2019.101303
25. Li, X., Balcilar, M., & Gupta, R. (2020). Geopolitical risks and stock market dynamics of emerging economies. Journal of International Financial Markets, Institutions & Money, 65, 101191. https://doi.org/10.1016/j.intfin.2020.101191
26. MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13–39. https://www.jstor.org/stable/2729691
27. Majdoub, J., & Mansour, W. (2014). Islamic equity market integration and volatility spillover between emerging and US stock markets. North American Journal of Economics and Finance, 29, 452–470. https://doi.org/10.1016/j.najef.2014.06.011
28. Mirza, N., Rizvi, S. K. A., Saba, I., Naqvi, B., & Yarovaya, L. (2022). The resilience of Islamic equity funds during COVID-19: Evidence from risk adjusted performance, investment styles and volatility timing. International Review of Economics & Finance, 77, 276–295. https://doi.org/10.1016/j.iref.2021.09.019
29. Mollah, S., & Zaman, M. (2015). Shari’ah supervision, corporate governance and performance: Conventional vs. Islamic banks. Journal of Banking & Finance, 58, 418–435. https://doi.org/10.1016/j.jbankfin.2015.04.030
30. Narayan, P. K., Phan, D. H. B., & Sharma, S. S. (2015). Does Islamic stock sensitivity to oil prices have economic significance? Pacific-Basin Finance Journal, 34, 440–463. https://doi.org/10.1016/j.pacfin.2015.06.002
31. Narayan, P. K., Phan, D. H. B., & Sharma, S. S. (2020). An analysis of the impact of geopolitical risk on stock markets: Evidence from emerging economies. Emerging Markets Review, 45, 100719. https://doi.org/10.1016/j.ememar.2020.100719
32. Rizvi, S. A. R., Arshad, S., & Alam, N. (2015). Crises and contagion in Asia Pacific — Islamic v/s conventional markets. Pacific-Basin Finance Journal, 34, 315–326. https://doi.org/10.1016/j.pacfin.2015.02.002
33. Rizvi, S. A. R., Narayan, P. K., & Sakti, A. (2020). Role of Islamic finance in mitigating the adverse effects of COVID-19 on economic stability. Pacific-Basin Finance Journal, 62, 101358. https://doi.org/10.1016/j.pacfin.2020.101358
34. Rizvi, S. K. A., Narayan, P. K., & Sakti, A. (2020). Spillover of COVID-19: Impact on Islamic equity markets. Journal of International Financial Markets, Institutions & Money, 68, 101321. https://doi.org/10.1016/j.intfin.2020.101321
35. Sukmana, R., & Kolid, R. (2012). Impact of global financial crisis on Islamic and conventional stocks in emerging market: Evidence from Indonesia. Asian Academy of Management Journal of Accounting and Finance, 8(2), 99–120.
36. Suryanto, T., & Azwar, M. (2021). The impact of global financial crises on Indonesia’s Islamic stock index. International Journal of Economics and Management, 15(2), 221–236.