Exploring the Causality Relationship Between Cryptocurrency Market and Islamic Stock Returns: A Toda-Yamamoto Approach

In recent times, this emerging debate between digital assets and traditional Islamic finance underscores the need for a comprehensive investigation of both markets. Thus, in an attempt to highlight the importance of understanding the unique dynamics between different cryptocurrency assets and the cultural and ethical considerations that shape investment decisions within the Islamic finance context, this paper empirically examined the causal linkages of Islamic stock returns in consideration of the Dow Jones Islamic Market World Index, with the cryptocurrency market demands. The Toda-Yamamoto Granger causality tests were applied to daily time-series data from January 2014 to October 2024. The study documents unidirectional causality running from the Solana market to Islamic stock returns. Not surprisingly, the study found no causal relationship between the other sampled cryptocurrency assets and Islamic stock market returns. The results indicated a weak, negligible association between cryptocurrencies and Islamic stock returns, reinforcing the idea that cryptocurrencies do not exert a causal influence on Islamic stocks. This means that movements in the cryptocurrency market do not translate into changes in Islamic stock prices. It is recommended that Islamic investors and general stakeholders maintain a focus on ethical, stable investments, thereby reinforcing the integrity of Islamic finance principles.