Abstract
This paper provides new insights into the non-linear relationship between the Dow Jones Islamic Market Index (DJIMI) and four energy prices, including WTI crude oil, gasoline, natural gas, and heating oil, using a novel quantile ARDL approach. Empirical evidence shows strong positive reactions by two energy sources, i.e. crude oil and gasoline, to the DJIMI during bullish markets represented by higher quantiles. This direct relationship prevails both in the long and short run. However, heating oil prices respond inversely to DJIMI in all quantiles. Furthermore, the results of the Wald test also imply asymmetric and non-linear transmission of energy prices to the Islamic stock market. The evidence of a quantile Granger causality test shows a feedback effect between energy sources and DJIMI. The results underline crude oil and gasoline as two major economic drivers explaining the short- and long-run Islamic stock market dynamics. Thus, when oil and gasoline prices are expected to increase, investors should invest more in Islamic stocks to earn better profits. Conversely, as heating oil prices show an inverse relationship with DJIMI, investors could gain more by investing in Islamic stocks when prices are declining.