Following recent events revolving around international consequences of the U.S. short-run interest rate setting and the trade wars reflected in exchange rate undercutting by the U.S. dollar over the Japanese Yen, have proven that international economic policies are not a matter of markets and economic forces alone. Likewise, these events combined with the great institutional implications of the European Monetary Union over the recent British political scene, the influence of the World Trade Organization on international trade and capital markets, have all proven the close interlinkages that globalization has come to establish as an interrelationship among economic, institutional and political forces.

Finally, the high degree of uncertainty in world capital markets, recently evidenced by the volatility of Asian stock markets, the rather low performance of the KLSE on the face of the joint interest rate - exchange rate mechanisms together with the speculative focus of large investors in capital markets, have fuelled growing economic uncertainty. In the midst of all these, the stock market can be seen as a good example of an analytical system that is no more capable of being modelled by linear conditions. Every interrelationship on yields, transactions, policy effects and investor repercussions in stock markets, is the result of a complex of economic and institutional factors at large. All of these factors have to be taken account of and necessary institutional norms through policy options have to be sought, in order to possibly model the stock market functions.

Objective

This paper is a brief technical note in the directions of showing how the complex of economic, institutional, social and political forces impinge upon stock market interrelationships to give rise to a new idea on stock market modelling. In such a model although prediction becomes difficult and risky, yet explanatory power is increased. When taken up in the venue of a normative perspective comprising directions to investors to intrinsically link money markets to real sectors, reduce speculative outlets and thus stabilize capital market fluctuations, the model we come up with is an Islamic normative model for stock market changes. For Malaysia, such a normative model is important precisely because through the KLSE a wide spectrum of socioeconomic and developmental issues get affected.

In what follows we now formulate a `global' form of a stock market model. Since every socioeconomic objective is described by a goal-oriented functional, here that criterion is taken to be a wellbeing function premised on stability and profitability arising from the stock market interactions and extending to the social economy. In Islamic pretext, such a `global' model is goal-oriented towards attaining the common goals of the Islamic communitarianism, called the Ummah. Such a goal-oriented functional for the Islamic world community is like the underlying social welfare function of trade and capital market relations for NAFTA, EC, APEC etc on the other side.

Thus in what follows, we formalize a technical nature of Ummatic globalization using the medium of stock market integration. The picture presented is fairly general.

The Model for the Stock Market in Islamic Perspectives

Empirical Evidence on Stock Market Uncertainties at KLSE

Conclusion