The aim of this paper is to examine the impact of the U.S. subprime crisis on the long-term and short-term dynamic relationships between conventional and Islamic stock markets in three sub periods. The comovements among these stock markets are examined through cointegration tests, and vector error correction model-based Granger causality tests. The sub periods studied are the pre-, post and during the recent subprime crisis. Results indicate that Islamic stock market indexes are attractive than their conventional counterparts for portfolio managers and international investors. Opportunities for potential earnings through diversification of investment portfolios are high in these markets.

cointegration, Granger causality, VECM, Islamic indices, subprime crisis