ANALYSIS OF MACROECONOMIC AND FINANCIAL FACTORS COINTEGRATED TIME SERIES WITH MALAYSIA ISLAMIC REAL ESTATE INVESTMENT TRUST STOCK RETURN

Abstract

The Islamic Real Estate Investment Trust (Islamic REIT) serves as an alternative Islamic investment instrument to sukuk and shariah compliant stock, which observes Islamic REIT experiencing a significant growth and demand in portfolio property value and Islamic market capitalization. The attractiveness of Islamic REIT has made it to become one of the common real estate investments apart from the physical property investment with a long-term and cheaper capital for property ownership. Likewise, the continual expansion of the Islamic REIT market in Malaysia is making great financial motivation that expands the investment spectrum. Therefore, the need to study the driving financial and macroeconomic long run force with Islamic REIT stock return, which in turn further contributes to the Islamic finance literature. This study was confined to nine study factors and two latent which the financial and macroeconomic factors. The financial factors comprise the long-term bond yield, systematic risk, stock market index and rental index. Meanwhile on macroeconomic latent as control factors are measured by the economic growth, interest rate, inflation rate, money supply and foreign exchange rate. The empirical tests adopted in this study are Johansen and Julius co-integration and Vector Error Correction Model. The empirical analysis shows that the macroeconomic factors, systematic risk, and rental index have a significant positive long run relationship towards the Islamic REIT stock return except for long term bond yield and stock market index. This study extended multifactor arbitrage pricing theory by including the systematic risk and rental index factors performing vital roles apart from the macroeconomic factors. This study will be a cornerstone for potential investors in providing a deeper understanding in comprehension linkage between the financial and macroeconomic factors and it potentially could offer as an alternatives investment instrument in structuring the portfolio.