Exploring the Nexus between Economic Policy Uncertainty and Shariah Indices using ARDL and Quantile Regression

Abstract

This study investigates the effects of economic policy uncertainty (EPU) on both Shariah-compliant and conventional stock indices at the Pakistan Stock Exchange (PSX). Thirteen years of monthly data (2010–2022) were utilized in this study, comprising 143 observations. The analysis was conducted using the Autoregressive Distributed Lag (ARDL) model and Quantile Regression to assess the impact on these indices. By focusing on Islamic Shariah indices, this research contributes to the existing literature and offers valuable insights for Islamic investors and financial policymakers. These findings align investment strategies with the principles of Maqasid al-Shariah in Pakistan’s financial markets. Additionally, the findings aim to bridge the gap between Islamic finance theory and practical investment decisions. While the current analysis is limited to the Pakistan Stock Exchange, future research could expand this framework to include other Muslim-majority nations, non-Muslim countries, transitional economies, and developed markets for broader comparative insights.