The Impact of Macroeconomic Environment on Islamic and Conventional Equity During Different Regimes: Evidence from the US

Abstract The US economy is a constantly changing organism, and over the past two decades, it has experienced several transformations that have drastically altered its outlook. With different macroeconomic factors having varying degrees of influence on equity prices in the US stock market, this raises the question of whether or not these effects vary between Islamic and conventional stocks during different economic cycles. This study seeks to explore the impact of macroeconomic events on Islamic and conventional investments depending on their respective economic conditions. Using a Markov-switching model, it will be determined how much more susceptible to volatility are these investments when faced with different levels of instability. The results of this research demonstrate that responses from certain variables differ greatly between times of stable economies and troubled times; therefore, market players and policymakers could explore how essential it is for them to properly consider how changes in the environment affect both types of equity when making decisions.