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Table 7 Estimated Conditional Returns with GARCH (1, 1)

From: Performance of Islamic and conventional stock indices: empirical evidence from an emerging economy

\( {R}_{m,t}={\pi}_0+{\displaystyle \sum_{i=1}^n{\pi}_i{R}_{m,t-i}}+{\theta}_1\varDelta F{X}_t+{\theta}_2\varDelta IN{T}_t+\gamma log\left({\mathrm{h}}_{\mathrm{m},\mathrm{t}}\right)+{\varepsilon}_{\mathrm{m},\mathrm{t}} \)

Panel A (Conditional Mean Equation)

Index Name

ARCH (1)

π 0

π i

θ 1

θ 2

γ

Adjusted R2

Conventional index (KSE-100)

63.2085 (2.342)*

9.2404 (12.765)***

0.082 (23.983)*

0.659 (-21.265)**

0.0033 (24.76)***

1.682 (21.87)**

0.2973

Islamic Index (KMI-30)

34.8262 (12.84)*)

4.2196 (-1.543)**

0.0049 (41.874)*

0.6619 (17.65)**

0.6619 (2.543)

2.4321 (1.042)*

0.2234

  1. Where R m,t is the stocks returns of m th Index (KMI-30, KSE-100), ΔFX t is the changes in foreign exchange rate, ΔINT t is the changes in 3 months T-Bills yield and subscript tis time index for all variables. The index volatility (risk) is measured by variable (h m,t ), and π 0, π i , θ 1, θ 2, θ 3, γ are parameters. Representation of volatility (h t ) in logarithmic form is consistent with Elyasiani et al. (1995) and Lloyd and Shick (1977)
  2. Note: Numbers in parentheses are t-values * Significant at 1 % level; ** Significant at 5 % level; *** Significant at 10 % level