Abstract: This objective of this study is to investigate the nexus between Shariah and traditional stock indices in the Dhaka Stock Exchange of Bangladesh using co-integration and VAR approaches. The primary results show that the Shariah and traditional both stock indices prices and return positively movement together, however, during the COVID-19 pandemic periods both indices’ prices and returns drastically declined. After the pandemic period, the trend has gained positive momentum, surprisingly, the Ukraine-Russia war has again disrupted the positive momentum and prolonged to the downward trend. Furthermore, the empirical findings reveal a lack of enduring correlation between Shariah and traditional stock indices. Intriguingly, the Shariah-based stock index demonstrates Granger causality over the traditional stock index. Additionally, the impulse response function analysis indicates that both Shariah and non-Shariah compliant stock indices exhibit positive responses to each other's shocks. These outcomes carry significant implications for investors, fund managers, and policymakers alike, influencing their decision-making processes and policy formulations in the realm of investments and financial regulations.
Keywords: Shariah stock index, traditional stock index, the COVID-19 pandemic, Russia-Ukraine crisis, Co-integration, and VAR model.