Effect of Exchange Rate, Foreign Exchange Reserves, and Consumer Price Index on the Shariah Shares Index of Asian Countries

Sharia shares are securities proof of equity participation in a company. On the base of this proof of participation shareholders are entitled to a share of income arisen from the company's business. This concept of equity participation with share rights of operating income does not conflict with Sharia principles. This study aimed to analyze the effect of exchange rate, foreign exchange reserves and consumer price index on the Sharia stock index of Asian countries, where the research object was the Islamic stock index of Indonesia, Malaysia, Japan and India. It is known that many factors influence on the stock index movements in a country, including domestic interest rates, foreign exchange rates, international economic conditions, a country's economic cycle, inflation rates, tax regulations, and the money supply. In this study, the authors examine the influence of only three factors – the exchange rate, foreign exchange reserves and consumer price index. The panel data regression method was used for the period of January to December 2019. The results of the regression analysis shown that the variables of exchange rates, foreign exchange reserves and the consumer price index together had a significant effect on the Islamic stock index of Asian countries. The R-squared value was 0.997762, meaning that 99% of the variation in the Islamic stock index of Asian countries could be explained by variations in the variable exchange rates, foreign exchange reserves and the consumer price index. The individual test results show that the exchange rate had a significant negative effect on the Islamic stock index of Asian countries. Meanwhile, foreign exchange reserves and the consumer price index had a significant positive effect on the Islamic stock index of Asian countries.