Determinants of Islamic Market Performance: Foreign Ownership, Cryptocurrency, and the Moderating Role of Investor Sentiment in Asia-Pacific Economies

Yong, Shin Ynn (2025) Determinants of Islamic Market Performance: Foreign Ownership, Cryptocurrency, and the Moderating Role of Investor Sentiment in Asia-Pacific Economies. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study explores the dynamics of Islamic equity markets in five Asia-Pacific countries namely Malaysia, Hong Kong, India, Indonesia, and Thailand by examining two core dimensions: (1) the influence of foreign ownership on the performance of Shariahcompliant publicly listed firms, and (2) the impact of cryptocurrency performance on Islamic stock markets, with a particular focus on the moderating role of investor sentiment. The analysis draws on a comprehensive dataset covering the period from 1 January 2017 to 31 December 2023. To address the first objective, the study employs T-tests, Random Effects models, and the System Generalized Method of Moments (System GMM) to assess the effect of foreign ownership on firm performance, as measured by return on equity (ROE) and return on assets (ROA). For the second and third objectives, the Generalized Autoregressive Conditional Heteroskedasticity (GARCH 1,1) model is used to evaluate the influence of cryptocurrency returns proxied by Bitcoin (BTC)on major Islamic stock indices across the five countries, while accounting for investor sentiment as a moderating variable. The results indicate that foreign ownership has a significant and negative effect on ROE in Hong Kong, suggesting a possible "home-field advantage" where domestic investors may be better aligned with local corporate governance practices and cultural expectations. In contrast, no consistent effect is found across the other countries, highlighting the context specific nature of ownership-performance relationships in Shariah-compliant firms. Furthermore, the study finds that cryptocurrency returns, when considered in isolation, do not have a statistically significant impact on Islamic stock market performance. However, when investor sentiment is introduced as a moderating factor, a significant relationship emerges particularly in the Hong Kong market during the post-COVID-19 period. These findings underscore the importance of incorporating behavioural finance perspectives into ethical and Islamic investment strategies and suggest that both ownership structure and market sentiment play critical roles in shaping financial performance and volatility in Shariah-compliant markets.