Economics and Business Vvolumeolume 2,1, Number 1,2, Decemberjune 2019 2018

Muhammadiyah International Journal of ISSN: 2685-7405 Economics and Business VVolumeolume 2,1, Number 1,2, DecemberJune 2019 2018 http://journals.ums.ac.id/index.php/mijeb

THE DISTINCTION BETWEEN SHARIA MARKET AND THE IMPACTS OF AFTA-COMMON EFFECTIVE PREFERENTIAL CONVENTIONAL MARKET: A STUDY ON INDONESIA STOCK TARIFFS ON THE TRADE DIVERSIONEXCHANGE AND TRADE CREATION OF SYNTHETIC RUBBER AND FACTICE FROM OIL IN INDONESIA Yadi Nurhayadi and Rito Universitas Muhammadiyah Prof.Faizal DR. Hamka Amir and (UHAMKA) Idah Zuhroh – Faculty of Economics and Business Jl. RayaUniversitas Bogor Muhammadiyahkm 23 no. 99 Jakarta Malang Timur Corresponding author: [email protected], Raya Tlogomas 246 Malang [email protected] [email protected], [email protected] Abstract The present study investigates the differencesAbstract between Islamic Economic System and Conventional RubberEconomic and System its products that supposedly are one of lead the to exported the differences commodities between listed sharia in Indonesia’smarket and tenconventional primary exportedmarket. Through commodities bivariate (Ministry and multivariate of Trade 2015). analysis, Different regression, from other correlation, rubber products,and determination the import oftests synthetic were carried rubber out and to identifyfactice from the effect oil have of conventionalincreased significantly market on sharia since themarket. establishment Analysis wasof thedone AFTA-CEPT based on the withdata ofapproximately Indonesia Stock 7 thousand Exchange registered from December products 2006 in the to MayInclusion 2017, ListThe (IL)data inconsisted 2002. This of Jakarta study aimedStock Exchangeto analyze (JSX)the competitiveness Composite Index of synthetic(Indeks Harga rubber Saham and factice Gabungan, from oilIHSG), among Jakarta the members Stock Exchange of AFTA Liquid countries Index and (LQ45), analyze Jakarta the impacts Islamic of Index trade (JII), creation and Indonesiaand trade diversionSharia Stock on theIndex implementation (ISSI). The results of the showCEPT-AFTA that IHSG on andsynthetic LQ45 rubber have aand significant factice oil positive from Indonesia,correlation particularlywith JII or ISSI. in the While 11 countries IHSG and of LQ45 origin are of classifiedimports during as the theelements period offrom conventional 2001 to 2013market, by JIIusing and a ISSIgravity are model, the representation which was analyzedof Sharia using market. static It indicatesdata panel. that Based sharia on market the results and ofconventional RCA (Revealed market Comparative are both present Advantage), with the thesame competitiveness character. In other of synthetic words, sharia rubber market and factice is still oilinfluenced from Indonesia by banking is very interest low among rate and four speculation. ASEAN countries, To confirm while this Thailand finding, is the listtop ofexporting issuers on countriesIDX, LQ45, in ASEAN JII, and ISSIregion. was The examined results ofand the the panel specific data analysissharia issuers showing were variables compared which with have non- positivesharia issuers, influence therefore are Indonesia’s the classification real GDP of and IHSG real andGDP LQ45 of the as countryconventional of origin market of imports, is corrected. while variablesBased on withthe results negative of theeffect analysis are economic of regression, distance correlation, and Indonesia’s determination, real exchange and investigation rate compared of tothe the collected country data, of origin a model of ofimports. sharia marketThe implementation stability is formulated. of AFTA-CEPT brought against trade diversion and creation of synthetic rubber and factice oil from Indonesia will have impacts on theKeywords: existence Bivariateof trade creation Analysis, because Multivariate part of the Analysis, domestic Stabilityproduction Model, of synthetic Sharia rubber Market, and facticeConventional oil from Market. Indonesia will be replaced with imports from member countries and there is no trade diversion. Introduction in the capital market can also be invested in other Keywords:As the countryAFTA, gravitywith the model largest, synthetic Muslim rubber Sharia and securities,factice from i.e., oil, sukuk trade andcreation, Sharia trade mutual populationdiversion in the world, Indonesia is a prospective funds (Indonesia Stock Exchange/IDX, 2017). market for the development of Islamic financial At the same time, the conventional stocks Introductionindustry. In fact, it has been initiated in Indonesia Figureon the 1,IDX even can though be considered there was a non-compliantslight decrease into sinceThe 1992, flow with the of establishment goods and of services the foremost between 2008Islamic due laws, to the including global economythose listed crisis. in Jakarta The worldStock countriessharia commercial in the lastbank, decade i.e., Bank had Muamalat increased importExchange value (IHSG) index and tends Jakarta to be Stock higher Exchange than the significantly.Indonesia. Subsequently, This was the proven Indonesian by capitalthe increase exportLiquid valueIndex because(LQ45). import These valueconventional has additional stocks ofmarket the export has been and enriched import byvalue Jakarta index Islamic around Index the componentor securities in allow the cost the practicesof trade transportation. of usury (referring world(JII) as between the first 2001 Islamic and 2013,stock whichindex listedis shown on thein to conventional bank interest rate fluctuations) Indonesia Stock Exchange (IDX) which launched as well as businesses that involve gharar on 3 July 2000, and followed by the Indonesia (speculation), maisir (gambling) and non-sharia- Sharia Stock Index (ISSI) launched on 12 May compliant activities (e.g., conventional banking, 2011. In addition, Islamic or Sharia investment liquor industry, and tobacco industry).

70 1 Muhammadiyah International Journal of Economics and Business, Volume 2, Number 1, June 2019

The distinction between Sharia and purchased shares in the FTSE Global Islamic and conventional stocks or securities will basically DJIMI indices were different from their indices lead to the differences in the fluctuations of their counterparts, both in the short-run and long-run. values. In order to ascertain the difference, the The hypothesis assumed that ethical screening bivariate and multivariate regression analysis might lead to increased screening and monitoring using a quantitative approach and the correlation costs, availability of a smaller investment universe, and determination analysis between Islamic stock and restricted potential for diversification. In and conventional stocks can be done. Furthermore, particular, ethical screening was inclined to to confirm the equations and the results of eliminate large firms from the investment universe quantitative analysis, it is necessary to qualitatively and as a result remaining firms tended to be examine the investors’ opinions and behavior smaller and had more volatile returns. In fact, in investing in Sharia or conventional stocks/ the findings indicated that ethical screening does securities in the capital market. The measures to not have an adverse effect on the global Islamic unveil the differences between Sharia markets Index performance. Generally, this study rejected (represented by stock transactions or Sharia the assumption that Islamic investment offered securities) and conventional market (represented inferior investment performance compared to by stock transactions or conventional securities) unscreened portfolios (Hussein, 2005). is enclosed in a study directed at revealing Sharia Achsani, Effendi, and Abidin (2007) studied market stability model. the Islamic stock markets of the USA, Canada, the Many studies have investigated the UK, Japan, Asia Pacific, Indonesia and Malaysia. distinction between Sharia capital market and The correlation coefficient method, granger- conventional capital market, the volatility of the causality test, and vector autoregressive were Sharia capital market, and the link between the employed. While there are strong correlations global Sharia capital markets. Such studies are the between Islamic stock indices, the spatial effort to reaffirm the consistency of Sharia market relationship of Islamic markets also positively to exclude usury system (i.e., the fluctuations influences its degree of relationship; which is on interest rates in conventional banks), gharar asymmetrical with each other. (speculation), maisir (gambling), and other non- Aziz and Kurniawan (2007) empirically sharia-compliant activities. They include the tested the Kuala Lumpur Sharia Index (KLSI) studies carried out by Hakim, Rashidian, Hussein, and the Jakarta Islamic Index (JII). This study Achsani, Effendi and Sclip. Some of the findings analyzed the indices of KLSI and JII that explain of those studies indicated the linkage between the descriptive statistics, tested the stochastic Sharia market and conventional market, yet some properties of the data series by using unit root, reported the opposite result. and performed GARCH test with the aim of Hakim and Rashidian (2004) compared assessing the volatility of the existing data. This Sharia stocks on the Dow Jones Islamic study concludes that the index volatility depends Market Index - US (DJIMI) with conventional on the market players. As long as the investors are stocks on the Wilshire 5000 Index (W5000). still in large quantities yet the Islamic paradigm is It used cointegration analysis and multivariate absence, the Islamic index is merely an index that autoregressive model as the method. The findings gives the investors either profits or losses. of this study revealed that the investors in DJIMI Chapakia and Sanrego (2007) empirically were relatively independent from the disruptions examined the risks and benefits of the Islamic occurred in the capital market, there was no capital market by using several econometric discernible correlation between the DJIMI and techniques, i.e., unit root test, cointegration test, W5000, and they are independent from each other and vector error correction model (VECM). (Hakim & Rashidian, 2004). The study examined the dynamic and long-term The impact of the ethical screening on the relationships between the composite index (Kuala performance of Financial Times and London Lumpur Stock Exchange Composite Index - KLSE Stock Exchange (FTSE) Global Islamic index CI), sharia index (KLSE Indeks Syariah), and the and Dow Jones Islamic Market Index (DJIMI) 3-month Treasury bill rate. The findings of the was scrutinized by Hussein (2005). It examined study differ from the results of research conducted examine whether returns gained by investors who by Hakim and Rashidian (2004). Chapakia and

71 Yadi Nurhayadi and Rito - The Distinction Between...

Sanrego found the high dynamic correlation between sukuk and regional market indexes between the Islamic index and the composite during financial crisis (Sclip, Dreassi, Miani, & index. It opposed the findings reported by Hakim Paltrinieri, 2016). and Rashidian (2004) in which those indices are Nurhayadi and Wijiharjono (2017) independent from each other, a sufficient condition investigated the phenomenon in Indonesia Stock for the lack of cointegration. Exchange in which it explained that Jakarta Saiti, Bacha, and Masih analyzed the daily Islamic Index (JII) has strong correlation with returns of five sharia-compliant stock indices IHSG and LQ45. Likewise, Indonesia Sharia (i.e., FTSE Sharia China Index, FTSE Sharia Stock Index (ISSI) also has strong correlation with India Index, FTSE Sharia USA Index , FTSE both IHSG and LQ45. In this context, the findings Malaysia EMAS Sharia Index, and Dow Jones reaffirmed IHSG and LQ45 as the representations Sharia Index) using the GARCH or combination of conventional markets. of dynamic multivariate approach. The study Based on the literature review, the initial estimated the dynamic conditional relationship hypothesis of the present study is: the Islamic between the investigated Sharia indices through capital market has a very strong relationship with a newly developed application, namely the conventional capital markets. The data obtained dynamic multivariate GARCH model with the from the activities of Indonesia Stock Exchange aim of assisting Islamic investors, both local (IDX), which consist of JII and ISSI which represent and international, to diversify their portfolios Islamic capital market, and JSX Composite index by hedging to avoid unexpected risks. The and LQ45 which represent conventional capital correlations between those five indices are not market, are involved to test the hypothesis. The constant but dynamic and time varying. Therefore, involved data is new relevant data (from 2006 to investors must monitor the volatilities and regulate 2017) for maintaining the quality and the novelty their investment portfolio (Saiti, Bacha, & Masih, of the research findings. 2013). Research conducted by Reddy and Fu Theoretical Framework (2014) examined whether there were differences Islamic or Sharia market is represented, in performance between Islamic stocks and among others, by the Sharia Capital Market. It is conventional stocks listed on the Australian Stock operated based on the fatwa issued by the National Exchange (ASX). The findings indicated that there Sharia Council of the Indonesian Ulama Council was a statistically significant difference in the (DSN-MUI). Despite fatwa is a non-binding legal performance of Islamic stocks and conventional opinion, the DSN-MUI fatwa becomes one of the stocks listed on the ASX in terms of risk, otherwise references in the issue of Islamic capital market the performance of Islamic stocks had a propensity in Indonesia. Currently, there are 17 DSN-MUI to be similar to conventional stocks. Additionally, fatwas related to this matter in which 3 (three) of it found that there was a statistically significant them are referred as the basis for the development relationship between the returns of Islamic stocks of Islamic capital market, namely: and conventional stocks. 1. Fatwa DSN-MUI No. 20/DSN-MUI/IV/2001 Sclip, Dreassi, Miani and Paltrinieri (2016) concerning Guidelines for Implementation of dissected the volatility and co-movements Investment for Islamic Mutual Funds. between sukuk and international stock indexes. 2. Fatwa DSN-MUI No. 40/DSN-MUI/X/2003 Symmetric multivariate GARCH models with concerning Capital Market and General dynamic conditional correlations (DCC) were Guidelines of Islamic Principles estimated under student-t distribution. The main Implementation in Capital Market Field. hypothesis was sukuk as a hybrid bond, with 3. Fatwa DSN-MUI No. 80/DSN-MUI/III/2011 similar characteristics between Islamic bonds and concerning the Implementation of Islamic equity due to their specific financing framework. Principles in Equity Securities Trading This study also illustrated the impact of the high Mechanism in Regular Market of Stock. correlation between sukuk and US and EU stock markets, without finding definitive knowledge Regulations related to the Indonesian about the quality behavior affecting Islamic bonds. Islamic capital market are in the form of laws, Additionally, it revealed the higher volatility and regulations issued by the Financial Services

72 Muhammadiyah International Journal of Economics and Business, Volume 2, Number 1, June 2019

Authority (OJK). Specifically, the OJK has issued The criteria between JII and ISSI are 10 regulations concerning the Islamic capital different. First, JII is selected from all stocks that market, namely: have complied with Sharia requirements based on 1. POJK No. 15/POJK.04/2015, POJK on the Criteria and Issuance of Sharia Securities List the Implementation of Sharia Principles in incorporated in the ISSI. Second, of the selected Capital Market. stocks, as many as 60 stocks which have the 2. POJK No. 16/POJK.04/2015, POJK on largest capitalization in the past year, are selected. Sharia Capital Market Experts. Third, of the selected 60 stocks, as many as 30 3. POJK No. 17/POJK.04/2015, POJK on the stocks are selected based on the highest liquidity Issuance of Sharia Securities Issuance and level as indicated by the value of transactions in Requirements Shares by Sharia Issuers or the regular market over the past year (Indonesia Sharia Public Companies. Stock Exchange (IDX), 2017). 4. POJK No. 18/POJK.04/2015, POJK on the Issuance and Sukuk Requirements. Research Method 5. POJK No. 19/POJK.04/2015, POJK on The present study is a quantitative research the Issuance and Requirements of Syariah using linear regression method. Data were Mutual Funds. examined using bivariate and multivariate analysis. 6. POJK No. 20/POJK.04/2015,POJK on the The analysis was based on the equations developed Issuance and Terms of Sharia Asset Backed by Walpole, Myers, Myers, and Ye (2013). In the Securities. bivariate analysis, the estimated linear regression 7. POJK No. 30/POJK.04/2016, POJK on is generated by the equation as follows: Sharia Real Estate Investment Fund in the form of Collective Investment Contract. (1) 8. POJK no. 53/POJK.04/2015, POJK on the contracts used in the issuance of Islamic The data of x and are displayed in a scatter Securities in the Capital Markets. plot diagram. The pattern of points on the scatter 9. POJK No. 61/POJK.04/2016, POJK on diagram forms a straight line, which indicates the Implementation of Sharia Principles in the linear relationship between the two variables. the Capital Market for Investment Manager. Given the paired {(xi, yi); i = 1, 2, ..., n} sample 10. Criteria and the Issuance of Sharia Securities data, the least squares method estimates b0 and b1 List, Rule Number II.K.1 concerning from equation (1) in the formula as follows: Criteria and the Issuance of Sharia Securities List. n  n  n  n∑ xi yi − ∑ xi ∑ yi  In the present study, the dynamics of the i=1  i=1  i=1  b1 = Islamic market are examined by observing the n n 2 2   fluctuations of Islamic stocks in the Jakarta n∑ xi − ∑ xi  Islamic Index (JII) and Indonesia Sharia Stock i=1  i=1  Index (ISSI). The JII consists of 30 Islamic stocks listed on the Indonesia Stock Exchange (IDX), b0 = y − b1 x (2) while the ISSI consists of all Islamic stocks listed on the IDX. JII, ISSI, and other Sharia securities By identifying b0 and b1 hence equation (1) are listed as stocks or securities traded on the is formulated. The correlation between x and y IDX, which have passed a periodic screening is calculated using the Pearson product-moment process to meet certain Sharia requirements. The correlation coefficient,r . screening includes the certainty that sharia stocks and securities are not related to usury (referring to conventional bank interest rate fluctuations), gharar (speculation), maisir (gambling) and non- sharia-compliant activities (e.g., conventional banking, liquor industry, tobacco industry, etc.) (DSN-MUI, 2013-2017). where,

73 Yadi Nurhayadi and Rito - The Distinction Between...

2  n n n  n   b0 ∑ yi + b1∑ x1i yi + b2 ∑ x2i yi − ∑ yi  n i=1 i=1 i=1 i=1 2     r = 2 ,  n    n ∑ yi 2  i=1  ∑ yi − i=1 n (6)

, (3) while the correlation coefficient is given by:

The range of values of r is from –1 to +1 or (7) –1 ≤ r ≤ +1. A value of –1 or close to –1 indicates a significant negative correlation between variable The examined data were obtained from the X and variable Y. Conversely, a value of 1 or data of JSX Composite Index (IHSG), LQ45, and close to 1 indicates a positive correlation between JII from December 2006–May 2017 (10 years variable X and variable Y. Meanwhile, a value of 6 months), and the data of ISSI from January 0 or close to 0 indicates no linear correlation or 2011–May 2017 (6 years 5 months). The value a weak linear correlation between variables X and of the stocks was recorded regularly at the close Y. The coefficient of determination, which states a on the last day of the month. By assuming that large percentage of the effect of variable x to y is JSX Composite Index (IHSG) and LQ45 are the expressed by R2. The coefficient of determination conventional markets while JII and ISSI are the states the percentage variation in variable y Islamic markets, as many as six scenarios were explained by x variables. It is denoted by r2. devised as follows: Furthermore, in the multivariate analysis, 1. x = JSX Composite, y = JII, bivariate analysis. the IHSG and LQ45 values are expressed as two 2. x = LQ45, y = JII, bivariate analysis. independent variables of x1 and x2, respectively. 3. x1 = JSX Composite, x2 = LQ45, y = JII, Meanwhile, the Islamic market index (JII or ISSI) multivariate analysis. is the dependent variable, y. The multiple linear 4. x = JSX Composite, y = ISSI, bivariate regression equation is as follows: analysis. 5. x = LQ45, y = ISSI, bivariate analysis. ˆ = + + y b0 b1x1 b2 x2 (4) 6. x1 = JSX Composite, x2 = LQ45, y = ISSI, multivariate analysis.

Given the data {(x1, x2, y); i = 1, 2,.., n}, hence to calculate b0, b1, b2, the least squares method These six scenarios were re-examined by is used to developed the following estimated observing the overall list of issuers from IHSG, regression equations. LQ45, JII, and ISSI. Subsequently, the 7th scenario was devised by sorting the data of stock index from January 2011 to June 2017) with the pure non-sharia issuers as x and the pure sharia issuers , as y, and bivariate analysis was performed. n n n n 2 b0 ∑ x1i + b1 ∑ x1i + b2 ∑ x1i x2i = ∑ x1i yi RESULTS AND DISCUSSION i=1 i=1 i=1 i=1 , The regressions, coefficients of determination, n n n n and correlation coefficients of the six scenarios 2 b0 ∑ x2i + b1 ∑ x1i x2i + b2 ∑ x2i = ∑ x2i yi have generated several points that are elaborated i=1 i=1 i=1 i=1 (5) below. 1. 1st scenario: x = JSX Composite, y = JII, ]The coefficient of determinationr ( 2) is given by: bivariate analysis.

74 Muhammadiyah International Journal of Economics and Business, Volume 2, Number 1, June 2019

The data processing of JSX Composite Index The results of data processing of LQ45 (x) or IHSG (x) and JII (y) with bivariate analysis and JII (y) with bivariate analysis method method generated a basic linear regression generated a simple linear regression equation equation as follows: as follows:

with correlation coefficient (r) = 0.9848 and Correlation coefficient (r) = 0.996 and coefficient of determination (r2) = 0.9698 coefficient of determination (r2) = 0.9911 (Fig. 1). The results indicate that IHSG and (Fig. 2). The results show that LQ45 and JII are directly proportional, implying the JII are directly proportional. The increase in increase in the IHSG means the increase in LQ45 index means the increase in JII index JII, and vice versa. The IHSG and JII also and vice versa. LQ45 and JII have a strong have a strong positive correlation in which positive correlation in which 99.11% of the 96.98% of the IHSG affecting the JII. LQ45 index affecting the JII index.

3. 3rd scenario: x1 = JSX Composite Index, x2 = LQ45, y = JII, multivariate analysis. The results of data processing of IHSG (JSX

Composite Index as x1), LQ45 (x2), and JII (y) with multivariate analysis method generated multiple linear regression equation as follows:

with correlation coefficient (r) = 0.9956 and coefficient of determination (r2) = 0.9913. The results indicate that the IHSG and LQ45 are directly proportional to the JII, meaning the increase in the IHSG and LQ45 is also accompanied by the increase in the JII, and Graph 1. IHSG vs. JII vice versa. Those indices also have a strong positive correlation, in which 99.13% of the IHSG and LQ45 affecting the JII. 4. 4th scenario: x = JSX Composite Index, y = ISSI, bivariate analysis. The results of data processing of IHSG (x) and ISSI (y) with bivariate analysis method generated a basic linear regression equation as follows:

with correlation coefficient (r) = 0.9865 and coefficient of determination (r2) = 0.9731 (Figure 3). The results show that IHSG and ISSI are directly proportional, the increase Graph 2. LQ45 vs. JII in the IHSG means the increase in the ISSI and vice versa. Moreover, the IHSG and the 2. 2nd scenario: x = LQ45, y = JII, bivariate ISSI also have a strong positive correlation analysis. in which 97.31% of the IHSG affecting the ISSI.

75 Yadi Nurhayadi and Rito - The Distinction Between...

5. 5th scenario: x = LQ45, y = ISSI, bivariate 6. 6th scenario: x1 = JSX Composite Index, x2 = analysis. LQ45, y = ISSI, multivariate analysis. The results of processing the LQ45 index (x) The results of processing the data of IHSG

and ISSI index (y) data with bivariate analysis (x1), LQ45 (x2), and ISSI (y) with multivariate analysis method generated a simple linear regression method generated a multiple linear regression equation as follows: equation as follows:

with correlation coefficient (r) = 0.964 and with correlation coefficient (r) = 0.9896 and coefficient of determination (r2) = 0.9299 coefficient of determination (r2) = 0.9793. (Figure 4). The results show that LQ45 and The results show that the IHSG and LQ45 ISSI are directly proportional, meaning the are inversely proportional with the ISSI increase in the LQ45 index also means the index. The increase in the IHSG and LQ45 increase in the ISSI index and vice versa. The index is simultaneously accompanied by the LQ45 and ISSI index have a strong positive decrease in the ISSI index. Nevertheless, the correlation in which 92.99% of the LQ45 IHSG and LQ45 index still have a strong index affecting the ISSI index. positive correlation with the ISSI index in which 97.93% of the IHSG and LQ45 index affecting the ISSI index.

All scenarios indicate that the independent variables have a strong positive correlation with the dependent variable. The independent variables explained 90% of the variation in the dependent variable. Assumed the IHSG and LQ45 are conventional markets while the JII and ISSI are Islamic markets, the situation implies the high correlation between conventional markets and Islamic markets. It opposes the ideal condition, in which Islamic markets should not have an association with interest rates, gharar (speculation), maisir (gambling), and non-sharia- Graph 3. IHSG vs. ISSI compliant businesses. Subsequently, the data of issuers in all indices were examined thoroughly to investigate the possible reasons for the high correlation coefficient and coefficient of determination yielded in the first six scenarios. The results are: 1. Of the 572 issuers listed on the IHSG, there are 30 JII issuers on it. As JII is a part of the IHSG hence the fluctuations in the IHSG greatly affect the fluctuations in the JII. 2. As many as 28 issuers are among the 45 issuers listed on LQ45 as well as 30 issuers listed on the JII. Most JII issuers (93.33%) are also listed on LQ45 hence the fluctuations in the LQ45 significantly affect the fluctuations in the JII. Graph 4. LQ45 vs. ISSI 3. Based on the facts above, the IHSG and LQ45 are simultaneously having a strong effect on

76 Muhammadiyah International Journal of Economics and Business, Volume 2, Number 1, June 2019

the fluctuations of JII. (Persero)) and the pure conventional issuers 4. Of the 572 issuers listed on the IHSG, 326 (PT Gudang Garam Tbk), was carried out. It has of them are also listed on the ISSI (totally, been identified that PT Telekomunikasi Indonesia there are 331 issuers in ISSI). Thus, most of (Persero) is listed on JII and ISSI. Meanwhile, PT the issuers of ISSI are also part of the IHSG. Gudang Garam Tbk (non-sharia) is not listed on It shows the fluctuations in the IHSG greatly either JII or ISSI. affect the fluctuations in the ISSI. Regression test, correlation test, and 5. Of the 45 issuers listed on LQ45, 33 issuers determination of: x = the stock value of PT Gudang are also listed on the ISSI. Thus, most of the Garam, y = the stock value of PT Telekomunikasi issuers of LQ45 (73.33%) are also listed on Indonesia, using bivariate analysis method. The the ISSI hence the fluctuations in the LQ45 simple linear regression equation generated from also affect the fluctuations in the ISSI. the data and method is ŷ = 6835.52 – 0.0282x; 6. Based on the facts, the fluctuations in the with a correlation coefficient, r = -0.0923 and IHSG and LQ45 will affect the fluctuations the coefficient of determination, r2 = 0.00853 in the ISSI. (Figure 5). The results indicate that the absence of correlation between the stock value of PT Gudang To ensure the actual correlation between the Garam and that of PT Telekomunikasi Indonesia. Islamic markets and the conventional markets, It also confirms that the volatility of Islamic the 7th scenario that covered regression test, market differs from and does not correlate with the correlation test, and determination between the fluctuation of conventional (non-sharia) markets. pure Islamic issuers (PT Telekomunikasi Indonesia

Figure 5. Gudang Garam vs. Telkom

Based on the findings of this study, the to the prudence concept and the consistency stability model of Islamic market can be explained for not involving and/or allowing any as follows: speculation and manipulation activities, 1. In Islamic markets, the types of business, i.e., dharar, gharar, usury, maisir, risywah, products, services, agreement and bad deeds and injustice. Briefly, secondary management system (as represented by markets designed based on pure speculation the issuers or public companies that issue is prohibited. Sharia Securities) must not oppose the Sharia 3. In calculating the stock exchange composite principles. The process of screening is carried index, the list of the sharia issuers or sharia out on JII and ISSI. public companies should not be merged with 2. In Islamic markets, the implementation of the list of non-sharia issuers or non-sharia transactions must be carried out according public companies.

77 Yadi Nurhayadi and Rito - The Distinction Between...

4. If the points of the Islamic market stability distinctive and also not correlated with the model produced in this study are implemented conventional markets. with consistency and discipline, it is estimated 5. The model of Islamic market stability that the pure Islamic market will be relatively devised in this study is clarified as follows: stable, distinctive, and not correlated to the First, the type of business, products, services, pure non-sharia markets. agreements and management systems (as represented by sharia issuers or sharia public Conclusion companies that issue sharia securities) 1. The fluctuations in IHSG and LQ45 are in the Islamic markets must not conflict highly correlated to and determined by the with the sharia principles. To ensure this fluctuations in JII and ISSI. Nevertheless, requirement, a screening is carried out on IHSG and LQ45 are actually ineligible for JII and ISSI. Second, the implementation of being considered as the manifestation of non- transactions in the Islamic markets must be sharia or conventional markets since most carried out based on the prudence concept of the issuers listed on JII and ISSI are also and the consistency for not involving and/or listed on the IHSG and LQ45. The finding of allowing any speculation and manipulation this study rejects the initial hypothesis that activities, including dharar, gharar, usury, the Islamic capital markets have a very strong maisir, risywah, bad deeds and injustice. relationship with the conventional capital The secondary markets that entail pure markets. speculation are prohibited. Third, in 2. After comparing the stock value of the sharia calculating the stock exchange composite issuers with the stock value of non-sharia index, the list of the sharia issuers or sharia issuers, the finding of this study affirms that public companies should not be merged with the Islamic markets are not correlated to the the list of non-sharia issuers or non-sharia conventional markets. Therefore, the initial public companies. hypothesis that the Islamic capital markets 6. To reinforce the evidence that the fluctuations have a very strong relationship with the in Islamic markets are distinctive from the conventional capital markets, is rejected. fluctuations in conventional markets and 3. The findings of this study indicate that the that the stability of the Islamic market is not coefficient of determination between Islamic disrupted by the fluctuations in conventional markets and conventional markets is very markets, it is necessary to conduct further low. It reveals that conventional markets comparison on the data of the fluctuations in have no effect on the Islamic market, and vice conventional markets and Islamic markets. versa. 7. In comparing the fluctuations in the aggregate 4. After examining the fluctuations in the Islamic market index and conventional value of sharia issuers compared to that of market index, the list of issuers should be non-sharia issuers, it can be stated that they specific. It means that the list of sharia issuers are not correlated. The investors of Islamic is only filled by the pure sharia companies markets are consistent in making investment while the list of conventional issuers is only hence the fluctuations in Islamic markets are filled by pure non-sharia companies.

References

Achsani, N. A., Effendi, J., & Abidin, Z. (2007). Dynamic interdependence among international Islamic stock market indices: Evidence from 2000-2007. The International Conference on Islamic Capital Market: Regulation Products and practice with Relevance to Islamic Banking and Finance (pp. 623-624). Jakarta: Muamalat Institute-IRTI IDB. Aziz, H. A., & Kurniawan, T. (2007). Modelling the volatility of shari’ah index: Evidence from Kuala Lumpur Shari’ah Index (KLSI) and The Jakarta Islamic Index (JII). The International Conference on Islamic Capital Market: Regulation Products and Practice with Relevance to Islamic Banking and Finance (pp. 127-157). Jakarta: Muamalat Institute - IRTI IDB.

78 Muhammadiyah International Journal of Economics and Business, Volume 2, Number 1, June 2019

Chapakia, H., & Sanrego, Y. D. (2007). An empirical analysis of Islamic stock returns in Malaysia. The International Conference on Islamic Capital Market: Regulation Products and Practice with Relevance to Islamic Banking and Finance (pp. 161 - 192). Jakarta: IRTI IDB - UI. Chapra, U. (2000). The Future of economics an Islamic perspective. Leicester: The Islamic Foundation. DSN-MUI. (2013-2017). Fatwa Dewan Syariah Nasional no 40. Retrieved 20 February 2017, from http://dsnmui.or.id/index.