The Trump Tariff Era and its Transmission to Emerging Economies: Empirical Insights from Indonesia's Shariah Stock Index

Global Journal of Economic and Finance Research Vol. 02(10): 1081-1092, October 2025 Home Page: https://gjefr.com/ e-ISSN: 3050-5348 p-ISSN: 3050-533X DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1081 The Trump Tariff Era and its Transmission to Emerging Economies: Empirical Insights from Indonesia’s Shariah Stock Index Oktavera Rizki1, Yunita Dalimunthe2, Iskandar Muda3, Andri Soemitra4, Yusrizal5 1,2,4,5Faculty of Islamic Economics and Business Universitas Islam Negeri Sumatera Utara, Medan, Indonesia 3Departement of Accounting, Universitas Sumatera Utara, Faculty of Economics and Business, Medan, Indonesia I. INTRODUCTION The rise of protectionist policies in global trade, particularly during the administration of former U.S. President Donald J. Trump, has reshaped the dynamics of international economic relations. One of the most consequential measures was the imposition of substantial import tariffs on a wide range of goods, targeting not only strategic rivals such as China but also long-standing allies and emerging economies (Bown & Kolb, 2020). This “tariff war” represented a departure from the multilateralist and liberal trade order that had dominated global commerce since the end of World War II. While the Trump administration justified these measures as tools to protect American industries, reduce trade deficits, and enhance domestic employment, the consequences reverberated globally, producing uncertainty in financial markets and reshaping investment behaviours (Fajgelbaum, Goldberg, Kennedy, & Khandelwal, 2020). Emerging economies, highly integrated into global supply chains and dependent on trade flows, became particularly vulnerable to these shocks. Indonesia, as the largest economy in Southeast Asia and an increasingly important player in the global financial system, provides a compelling case for studying the spillover effects of U.S. trade protectionism. The imposition of tariffs by the United States disrupted trade flows, altered currency movements, and contributed to heightened volatility in global financial markets. For Indonesia, whose economy is characterized by both reliance on commodity exports and a growing capital market, the Trump tariff era raised pressing KEYWORDS: Trump tariffs, transmission, emerging economies, Shariah stock index, Indonesia. Corresponding Author: Oktavera Rizki Publication Date: 15 October-2025 DOI: 10.55677/GJEFR/11-2025-Vol02E10 License: This is an open access article under the CC BY 4.0 license: https://creativecommons.org/licenses/by/4.0/ ABSTRACT Purpose: This study examines the transmission of trade policy shocks from the Trump tariff era to Indonesia’s Islamic capital market, focusing on the Indonesia Sharia Stock Index (ISSI), Jakarta Islamic Index 70 (JI70), and Jakarta Islamic Index (JII). Materials and Methods: Using daily data from April to September, the study applies return analysis, abnormal return estimation, and cumulative abnormal return (CAR) calculations to assess the market response to U.S.–China trade tensions. Results: Findings show that Islamic indices generally move in line with the broader IDX Composite, though trade tensions increased volatility and caused short-term fluctuations, particularly in June and August. ISSI displayed significant abnormal returns compared to the composite index, suggesting greater sensitivity to global trade shocks. Despite this volatility, all indices recorded positive CAR values—ISSI (0.1250), JI70 (0.1099), and JII (0.0909)— indicating sustained medium-term resilience. Conclusion: Indonesia’s Shariah-compliant equity market is affected by international trade policies but remains stable and competitive. These findings highlight the resilience of Islamic indices in emerging markets and provide insights for policymakers and investors on diversification and strengthening Islamic capital market performance. Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1082 concerns regarding investor confidence and capital flows (Azwar & Suryanto, 2021). More importantly, beyond the conventional stock market, the country hosts a rapidly developing Islamic finance sector, including the Jakarta Islamic Index (JII) and other Shariah-compliant stock indices. These indices have gained increasing prominence in recent years, not only as a reflection of Indonesia’s position as the world’s largest Muslim-majority country but also as an alternative investment avenue during periods of heightened global uncertainty (Alam, Hassan, & Haque, 2016; Rizvi, Narayan, & Sakti, 2020). The study of Shariah-compliant equities in the context of global trade shocks is particularly relevant. Islamic financial principles prohibit excessive uncertainty (gharar) and speculative behavior (maysir), while encouraging profit-and-loss sharing arrangements and the exclusion of interest-bearing instruments (Chapra, 2016). As a result, Islamic stock indices tend to exhibit structural differences from conventional benchmarks, potentially influencing their sensitivity to external shocks. Previous research has highlighted the resilience of Islamic equities during periods of global financial crises (Abdullah, Hassan, & Mohamad, 2017), as well as their diversification benefits for international investors (Dewandaru, Rizvi, Masih, Masih, & Alhabshi, 2014). However, empirical evidence on how these indices respond to trade-related geopolitical shocks—such as the Trump tariff escalations— remains limited. From a theoretical perspective, trade wars can be conceptualized as global risk shocks that propagate through multiple transmission channels. According to the international finance literature, tariff hikes and retaliatory trade measures influence financial markets through exchange rate volatility, changes in commodity prices, and shifts in investor risk perception (Caldara, Iacoviello, Molligo, Prestipino, & Raffo, 2020). For emerging economies like Indonesia, these transmission mechanisms are often amplified due to structural vulnerabilities, such as reliance on foreign capital inflows, relatively shallow financial markets, and commodity export dependence (Ibrahim, 2019). In such an environment, understanding how Shariah-compliant indices react to global trade policy shocks is not only of academic interest but also of significant policy relevance for regulators and investors seeking to mitigate risks. The existing body of literature has extensively examined the effects of the Trump tariff era on global trade patterns and macroeconomic performance (Amiti, Redding, & Weinstein, 2019; Crowley, 2019). Several studies have also explored the repercussions for conventional stock markets across developed and emerging economies (Li, Balcilar, & Gupta, 2020). However, research focusing specifically on Islamic stock markets in the context of trade wars remains sparse. While there is a growing recognition of the role of Islamic finance in enhancing financial stability (Rizvi et al., 2020), empirical studies on the interaction between global protectionist shocks and Islamic equity indices are still in their infancy. This gap highlights the need for rigorous investigation into how global trade conflicts transmit into Shariah-compliant financial instruments in emerging markets. Indonesia’s Islamic stock index offers a particularly suitable case study. With the Jakarta Islamic Index (JII) and IDX Shariahcompliant equities gaining increasing investor attention, examining their performance under global trade tensions provides novel insights into the resilience and vulnerabilities of faith-based financial systems. Moreover, the Trump tariff era provides a natural experiment to analyse how non-economic motivations in policymaking—such as political populism and strategic rivalry—can generate spillover effects into markets traditionally perceived as insulated from speculation. By focusing on Indonesia’s Islamic stock index, this study seeks to bridge the gap between the literature on trade wars and Islamic finance, offering both theoretical and practical contributions. This study contributes to the literature in several ways. First, it extends the understanding of the financial transmission of trade shocks by analysing Shariah-compliant equities, an area often overlooked in mainstream international finance studies. Second, it enriches the discussion on emerging markets’ vulnerability to global geopolitical events, highlighting the case of Indonesia, a key member of the G20 and the largest Islamic finance hub in Southeast Asia. Third, the findings of this study provide policy-relevant insights for regulators, investors, and policymakers in both emerging economies and Islamic finance jurisdictions. By identifying the extent to which Trump’s tariff policies affected Indonesia’s Islamic stock index, this research offers guidance for developing strategies to mitigate external shocks, enhance investor protection, and strengthen financial market resilience. II. LITERATURE REVIEW The Trump Tariff Era: Scope and Macroeconomic Consequences The tariff escalations initiated under the Trump administration (beginning in 2018) represented one of the most abrupt and largescale departures from post-war multilateral trade liberalization. Empirical macroeconomic analyses indicate that the U.S. tariffs produced measurable welfare losses, shifted relative prices, and raised costs for consumers and firms—effects that manifested both domestically and internationally. Detailed sectoral analysis shows that, while some incumbent producers benefited from protection, the net incidence of the tariffs fell heavily on U.S. importers and consumers, and propagated welfare losses through global value chains (Amiti, Redding, & Weinstein, 2019; Fajgelbaum et al., 2020). Transmission Channels from Trade Policy to Asset Prices The literature identifies several overlapping channels through which tariff shocks transmit to asset prices: (1) fundamentals channel—tariffs alter expected future profits by changing input costs, demand for exports, and competitiveness; (2) risk-perception channel—policy uncertainty raises required risk premia and reduces valuation multiples; (3) exchange-rate/monetary channel— trade shocks affect currency values and thus foreign-investor returns; and (4) global value-chain amplification—countries integrated Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1083 into GVCs receive indirect shocks even when not directly targeted. Empirical asset-price work during the 2018–2019 trade tensions confirms that these mechanisms operate contemporaneously, producing heterogeneous cross-border effects depending on trade linkages and exposure to intermediate inputs (Caldara et al., 2020; Li, Balcilar, & Gupta, 2020). Evidence on Cross-Border Spillovers and Emerging Markets A growing body of empirical research documents that trade wars generate international spillovers to equity markets, with particularly strong effects for economies closely integrated into U.S.–China trade networks or GVCs. Emerging markets tend to experience amplified volatility and negative return pressures because of shallower domestic markets, higher reliance on foreign portfolio flows, and greater commodity-export sensitivity. Case studies focusing on Southeast Asia and Indonesia document that U.S.–China tariff measures induced export demand shifts and competitiveness changes that affected export volumes and terms of trade—channels that plausibly transmit to domestic stock indices (Crowley, 2019; Narayan, Phan, & Sharma, 2020). Financial Market Studies on Trade Policy Shocks Empirical finance literature on the 2018–2019 tariff episode finds that global equity markets reacted negatively to tariff announcements and episodes of escalation, with effects concentrated in trade-exposed industries (e.g., machinery, semiconductors, auto, and chemicals). Asset-pricing studies also reveal that uncertainty around trade policy increased downside tail risk and crossasset correlations during episodes of heightened rhetoric. For emerging markets, trade policy shocks often coincided with heightened geopolitical risk and changes in U.S. monetary expectations, compounding their effects on equity returns and volatility (Caldara et al., 2020; Li et al., 2020). Islamic Equities: Theory and Empirical Resilience Islamic equity indices (e.g., Jakarta Islamic Index and IDX Shariah sub-indices) differ structurally from conventional benchmarks because of Shariah screening rules (exclusion of financials with high leverage, alcohol, gambling, conventional banking, and interest income exposure). Two competing hypotheses exist regarding Islamic indices’ behavior during systemic shocks: (a) buffer hypothesis—Shariah screening yields lower leverage and more real-sector exposure, which can reduce downside vulnerability; and (b) vulnerability hypothesis—exclusionary rules concentrate sectoral exposures, reducing diversification. Evidence from the Global Financial Crisis and COVID-19 is mixed: some studies report relative resilience, while others find no robust outperformance once sectoral effects are controlled (Alam et al., 2016; Mirza et al., 2022; Rizvi, Narayan, & Sakti, 2020). Empirical Studies on Indonesia’s Islamic Index and External Shocks Recent studies analysing Indonesia’s Islamic indices apply event studies, VAR-GARCH, and spillover models to examine global shocks and geopolitical events. Findings suggest that the Jakarta Islamic Index’s sensitivity is mediated by exchange rates, commodity prices, foreign investor flows, and the sectoral composition of Shariah-screened firms. Some studies show that the JII can serve as an alternative store of value in stress episodes, though its protective attributes are neither universal nor unconditional (Ibrahim, 2019; Suryanto & Azwar, 2021). Gaps in the Literature Despite evidence that trade policy shocks affect asset prices and that Islamic indices may exhibit resilience, gaps remain. First, most research on the 2018–2019 tariff episode has focused on conventional indices; targeted study of how such shocks transmit to faithbased equity indices in emerging markets remains limited. Second, few studies combine high-frequency event analysis of tariff announcements with structural spillover models that account for GVC linkages, currency dynamics, and foreign-ownership patterns—factors critical for Indonesia (Bown & Kolb, 2020). Positioning and Contribution of This Study Building on these strands, the present study contributes by (1) isolating the market reaction of Indonesia’s Shariah stock index to discrete tariff announcements during the Trump era; (2) comparing reactions with conventional benchmarks to assess resilience; and (3) decomposing transmission channels using spillover and event-study frameworks. This research extends both trade-policy spillover and Islamic finance literatures by offering micro-level evidence from Indonesia, a major emerging market with a significant Islamic equity sector. III. METHOD This study employs a quantitative research design that integrates an event study methodology with time-series econometric analysis to examine the transmission of tariff shocks from the United States to Indonesia’s Shariah stock index during the Trump tariff era (2025). The combination of these approaches allows the study to capture both the short-term market reactions to tariff announcements and the medium-term spillover dynamics that transmit through global financial and trade channels. Data and Sample Selection The dataset comprises daily closing prices of the Indonesia Sharia Stock Index (ISSI), Jakarta Islamic Index 70 (JII70), Jakarta Islamic Index (JII) and the Indonesia Stock Exchange Composite Index (IDX Composite), serving as the Shariah-compliant and Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1084 conventional equity benchmarks, respectively. Financial data are collected from the Indonesia Stock Exchange (IDX) and Bloomberg terminals. The event window is defined around key tariff announcement dates during the Trump administration (March 2, 2025 - October 2, 2025). Events are classified into tariff impositions, escalation announcements, and de-escalation/negotiation signals to examine market asymmetries. Event Study Methodology The event study framework is employed to estimate abnormal returns (ARs) and cumulative abnormal returns (CARs) for the Indonesia Sharia Stock Index (ISSI), Jakarta Islamic Index 70 (JII70), Jakarta Islamic Index (JII) and the Indonesia Stock Exchange Composite Index (IDX Composite) around tariff announcement dates. Average Price (AP) The average price is calculated by summing the stock prices of N firms at time t and dividing by the number of firms. It is often used to represent the average stock movement across a sample of securities. 𝐴𝑃𝑡=Σ𝑖=1 𝑁𝑃𝑖,𝑡 𝑁 Return (R) The return of stock i at time t is the percentage change in its price compared to the previous period. Returns are the fundamental input for event studies and financial performance analyses. 𝑅𝑖,𝑡 =𝑃𝑖,𝑡 −𝑃𝑖,𝑡−1 𝑃𝑖,𝑡−1 Average Return (AR) The average return is the mean of individual stock returns at time t. It measures the general performance of the sample group during a specific time. 𝐴𝑅𝑡=1 𝑁∑𝑅𝑖,𝑡 𝑁 𝑖=1 Abnormal Return (AbR) Abnormal return is the difference between the actual return of a stock and its expected return. The expected return (E(Ri,t)) is usually estimated using models such as the Market Model, CAPM, or a constant mean return model. It captures the portion of return attributable to the event under study (e.g., tariff announcement). 𝐴𝑏𝑅𝑖,𝑡 =𝑅𝑖,𝑡 −𝐸(𝑅𝑖,𝑡) Cumulative Abnormal Return (CAR) The cumulative abnormal return measures the total impact of an event over a specified window (t1,t2). It aggregates abnormal returns across multiple days to assess the sustained effect of the event. 𝐶𝐴𝑅𝑡(𝑡1,𝑡2)= ∑𝐴𝑏𝑅𝑖,𝑡 𝑡2 𝑖=𝑡1 IV. RESULTS AND DISCUSSION Table 1 presents the descriptive statistics of the Islamic indices (ISSI, JII, JI70) and the IDX Composite across the six-month period (April–September). The findings indicate a consistent upward trajectory across all indices, reflecting both domestic and global capital market dynamics. Table 1. Descriptive Statistics of Islamic Index and Composite Index ISSI JI70 JII IDX Composite April N 16 16 16 16 Mean 203.4631 151.7100 425.3331 6454.9225 SD 9.60450 8.97252 26.65799 245.79024 Min 185.66 134.1000 373.94 5967.99 Max 215.0400 162.1900 455.5400 6766.79 Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1085 ISSI JI70 JII IDX Composite May N 17 17 17 17 Mean 222.0324 169.1524 474.7518 7034.2153 SD 3.26209 3.38631 9.68164 149.57579 Min 216.42 163.35 458.75 6815.73 Max 226.19 173.70 488.81 7214.16 June N 18 18 18 18 Mean 227.5783 174.4989 492.9572 7038.1406 SD 3.94917 3.74239 11.08924 140.47556 Min 220.71 168.02 473.62 6787.14 Max 232.73 179.57 507.85 7230.75 July N 23 23 23 23 Mean 239.3509 181.2265 511.9339 7214.0848 SD 11.28575 5.32756 14.70738 273.18067 Min 225.64 173.61 490.15 6865.19 Max 255.81 189.94 536.63 7617.91 August N 20 20 20 20 Mean 261.3935 191.0315 531.4625 7763.6425 SD 5.79445 2.37489 7.33080 187.82052 Min 253.35 187.25 517.91 7464.65 Max 268.12 194.45 541.62 7952.09 September N 21 21 21 21 Mean 1519.8895 194.1167 535.7843 7932.5210 SD 5.71060 4.84743 13.87755 155.65555 Min 262.09 186.20 514.69 7628.60 Max 264.43 202.04 557.00 8126.56 The Indonesia Sharia Stock Index (ISSI) demonstrates significant growth during the observed period, with the mean increasing from 203.46 in April to 261.39 in August, before rising sharply to 1519.88 in September. The standard deviation (SD) values range from 3.26 to 11.29, suggesting moderate volatility. The dramatic increase in September may be attributed to methodological adjustments or substantial market inflows into sharia-compliant equities, consistent with prior evidence that Islamic indices can exhibit distinct reactions to market conditions compared to conventional benchmarks (Abedifar, Molyneux, & Tarazi, 2013). The Jakarta Islamic Index 70 (JI70) follows a similar pattern, showing a steady rise from a mean of 151.71 in April to 194.12 in September. The relatively low SD values (2.37 to 8.97) indicate that JI70 was less volatile, particularly in mid-2023, compared to broader indices. This stability supports earlier findings that Islamic indices tend to have lower risk exposure due to sectoral screening, especially excluding highly leveraged and speculative industries (Beck, Demirgüç-Kunt, & Merrouche, 2013). The Jakarta Islamic Index (JII), which represents the 30 most liquid Islamic stocks, also exhibits steady growth, with mean values rising from 425.33 in April to 535.78 in September. Its volatility (SD between 7.33 and 26.66) is slightly higher than JI70, reflecting its narrower composition and exposure to large-cap equities. This aligns with previous research showing that narrower Islamic indices often display higher sensitivity to market fluctuations (Majdoub & Mansour, 2014). The IDX Composite, representing the entire Indonesian stock market, increased from a mean of 6,454.92 in April to 7,932.52 in September. The relatively high SD (140.48 to 273.18) highlights the broader market’s exposure to macroeconomic fluctuations. The simultaneous upward movement of Islamic and conventional indices suggests strong market recovery momentum, in line with global post-pandemic equity trends. This reflects broader evidence that both Islamic and conventional indices can co-move during periods of market expansion, though Islamic indices may demonstrate resilience during crises due to their asset-backed nature (El-Khatib & Hatemi-J, 2017). Overall, the results show that while both Islamic and conventional indices experienced positive growth, Islamic indices (ISSI, JI70, JII) demonstrated relatively lower volatility and a stable upward trajectory compared to the IDX Composite. This finding strengthens the argument that Islamic finance provides a resilient and sustainable investment avenue, particularly in emerging markets like Indonesia (Sukmana & Kolid, 2012). Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1086 Table 2. Descriptive Statistics Returns of Islamic Index and Composite Index Table 2 reports the descriptive statistics of daily returns for the Islamic indices (ISSI, JI70, JII) and the IDX Composite from April to September. The results indicate that all indices generated positive mean returns over the six-month period, though differences in magnitude and volatility are evident. The Indonesia Sharia Stock Index (ISSI) posted an overall mean return of 0.00366, slightly higher than the IDX Composite (0.00264). This suggests that the broader Islamic equity market in Indonesia performed relatively better than the conventional benchmark over the observed period. The standard deviation (SD) of ISSI (0.00928) was lower than that of JI70 and JII but comparable to the IDX Composite, indicating moderate volatility. These results support findings that Islamic stock indices can provide competitive returns with risk levels that are not necessarily higher than their conventional counterparts (Al-Khazali, Lean, & Samet, 2014). The Jakarta Islamic Index 70 (JI70) and the Jakarta Islamic Index (JII) both reported mean returns of 0.00354 and 0.00345, respectively, with slightly higher volatility (SD of 0.01169 and 0.01246). The higher volatility of JII reflects its narrower composition, which makes it more exposed to fluctuations in large-cap Islamic stocks. This aligns with previous research indicating that narrower Islamic indices are more sensitive to market dynamics compared to broader-based ones (Majdoub & Mansour, 2014). The IDX Composite showed the lowest mean return (0.00264) over the period, but also relatively low volatility (SD = 0.00952). This outcome suggests that while conventional stocks offered relatively stable performance, Islamic indices provided marginally higher returns, reinforcing the notion that sharia-compliant investments can be both competitive and resilient. This resilience is often ISSI JI70 JII IDX Composite April N 15 15 15 15 Mean .0096622667 .0123205320 .0128601293 .0081718684 SD .01066040214 .01740847557 .01718004714 .01312694680 Min -.00343530 -.00850280 -.00766920 -.00646260 Max .03915760 .05346756 .05338830 .04792736 May N 17 17 17 17 Mean .0029505235 .0037975976 .0038692076 .0034871676 SD .00642751731 .00873300675 .00894001093 .00783938618 Min -.01082230 -.01376720 -.01337890 -.01421841 Max .01252706 .01555609 .01821897 .02152558 June N 18 18 18 18 Mean .0002540356 .0005711983 .0010630694 -.0019056393 SD .01006319326 .01339403470 .01410675559 .01002521809 Min -.01880500 -.02300660 -.02436210 -.01957711 Max .01369374 .02122062 .02146501 .01649418 July N 23 23 23 23 Mean .0049097870 .0033299330 .0031211648 .0033889990 SD .00931954768 .00928509972 .01022245149 .00694471323 Min -.01282830 -.02181760 -.02301200 -.00892896 Max .02705243 .01933032 .02105201 .01694955 August N 20 20 20 20 Mean .0021902180 -.0001685800 -.0011738685 .0023016197 SD .00837965725 .00937473546 .01106540730 .00901566857 Min -.01227060 -.01721510 -.02491450 -.01529158 Max .02032032 .01352719 .01478757 .02442571 September N 21 21 21 21 Mean .0028982705 .0033881619 .0032067438 .0014224684 SD .00914746363 .00940250845 .01066136201 .00910965455 Min -.01331040 -.01758940 -.02334890 -.01780001 Max .01533824 .01933405 .01738283 .01370178 April - September N 114 114 114 114 Mean .0036601639 .0035440085 .0034514453 .0026439436 SD .00928465020 .01168929967 .01246508756 .00952821141 Min -.01880500 -.02300660 -.02491450 -.01957711 Max .03915760 .05346756 .05338830 .04792736 Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1087 attributed to the sectoral screening process, which excludes highly leveraged and speculative firms, thereby reducing exposure to excessive risk during volatile periods (Beck, Demirgüç-Kunt, & Merrouche, 2013). Looking at monthly variations, April recorded the highest returns across all indices, with ISSI averaging 0.00966 and JII peaking at 0.01286, reflecting strong post-pandemic momentum. By contrast, June and August witnessed periods of lower or near-zero returns, with JII and JI70 even recording slightly negative averages in August. These fluctuations are consistent with short-term corrections in equity markets and global macroeconomic uncertainties (El-Khatib & Hatemi-J, 2017). Nevertheless, by September, positive returns had resumed across all indices, indicating market recovery and alignment with global equity upturns. Overall, the analysis reveals that Islamic indices in Indonesia not only produced higher average returns than the conventional IDX Composite but also maintained comparable levels of volatility. This strengthens the argument that Islamic finance provides a viable and competitive investment alternative, especially for risk-averse investors seeking stability with ethical considerations (Sukmana & Kolid, 2012). Table 3. Comparison of Returns Between Islamic Index and Composite Index t-value df Sig. (2-tailed) ISSI - JI70 .211 113 .834 ISSI - JII .340 113 .734 ISSI - IHSG 2.310 113 .023 JI70 - JII .437 113 .663 JI70 - IHSG 1.401 113 .164 JII - IHSG 1.113 113 .268 Table 3 presents the comparison of returns between Islamic indices (ISSI, JI70, JII) and the IDX Composite (IHSG) using paired ttests. The results reveal mixed patterns of similarity and divergence across the indices. The comparison between ISSI and JI70 (t = 0.211, p = 0.834) and ISSI and JII (t = 0.340, p = 0.734) shows no statistically significant difference in returns. Similarly, the JI70–JII comparison (t = 0.437, p = 0.663) indicates strong similarity in return distributions. These results confirm that the Islamic indices in Indonesia—whether broad-based (ISSI), moderately diversified (JI70), or concentrated (JII)—move closely together. This is consistent with previous research showing a high degree of correlation among Islamic indices due to overlapping stock constituents and uniform Shariah-compliance screening methodologies (Sukmana & Kolid, 2012; Majdoub & Mansour, 2014). By contrast, the ISSI–IDX Composite comparison (t = 2.310, p = 0.023) is statistically significant at the 5% level. This suggests that Islamic stocks, as represented by ISSI, yielded returns that are distinct from the conventional benchmark. The divergence may be attributed to sectoral restrictions in Islamic finance, which exclude firms involved in conventional banking, alcohol, and gambling, among others (Beck, Demirgüç-Kunt, & Merrouche, 2013). These exclusions can reduce exposure to cyclical and speculative industries, potentially offering resilience under certain market conditions. On the other hand, comparisons between JI70–IDX Composite (t = 1.401, p = 0.164) and JII–IDX Composite (t = 1.113, p = 0.268) are not statistically significant, suggesting that narrower Islamic indices tend to align more closely with the broader market performance. This finding aligns with evidence that concentrated Islamic indices, dominated by large-cap firms, tend to mimic the behaviour of the overall stock market, while broader indices like ISSI capture a more diverse set of companies, leading to return differentials (El-Khatib & Hatemi-J, 2017). Overall, the results indicate that while Islamic indices generally move in tandem with one another, the broader ISSI shows statistically significant differences when compared to the IDX Composite. This highlights the unique return profile of the Islamic equity market in Indonesia, suggesting that investors seeking diversification may benefit from including sharia-compliant equities in their portfolios. The findings support prior studies emphasizing the diversification benefits and resilience of Islamic indices, particularly in emerging markets (Al-Khazali, Lean, & Samet, 2014). Table 4. Descriptive Statistics of Abnormal Returns of Islamic Index ISSI JI70 JII April N 15 15 15 Mean .0014903920 .0048361400 .0046882440 SD .00516763132 .00933066121 .01086440799 Min -.00876980 -.00603260 -.00917930 Max .00765007 .03416875 .03641511 May N 17 17 17 Mean -.0005366489 .0306584179 .0003820329 SD .00373732454 .12645321419 .00497578334 Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1088 Table 4 presents the descriptive statistics of abnormal returns (ARs) for the three Islamic indices in Indonesia—ISSI, JI70, and JII— over the period from April to September. Abnormal returns are an important indicator of whether a stock index generates returns beyond what is expected under normal market conditions, often used in event studies to evaluate performance and market efficiency (MacKinlay, 1997). The results demonstrate that abnormal returns fluctuate across months and indices, with both positive and negative averages recorded. For ISSI, abnormal returns are generally small in magnitude, ranging from –0.00053 in May to 0.00200 in June. This stability is reflected in the relatively low standard deviation (SD = 0.00442–0.00529), suggesting that broad-based Islamic indices exhibit less sensitivity to short-term market shocks. This finding is consistent with prior studies indicating that diversified Islamic indices tend to deliver more stable performance compared to narrower Islamic indices (Al-Khazali, Lean, & Samet, 2014). The JI70 shows more pronounced volatility. For instance, in May, it records an unusually high mean abnormal return of 0.0306, with a maximum of 0.5211 and a large standard deviation (SD = 0.1264), suggesting the presence of outliers or major market events during this period. In contrast, other months such as July (–0.00006) and August (–0.00247) show negative abnormal returns. This indicates that the JI70, being moderately diversified, is more susceptible to shocks in certain large-cap sharia-compliant stocks. Such volatility patterns highlight the heterogeneity of Islamic indices and their exposure to sector-specific movements (Majdoub & Mansour, 2014). The JII, which is the narrowest index, also reveals variability in abnormal returns. While June recorded a positive mean of 0.00297, August shows a substantial negative mean abnormal return of –0.00812, with a minimum of –0.1031. This reflects significant downside risk, likely due to its concentration in fewer, highly capitalized firms, making it more sensitive to market downturns. Previous literature has emphasized that concentrated Islamic indices often exhibit higher volatility and asymmetric reactions to market shocks compared to broader indices (El Khatib & Hatemi-J, 2017). When observing the entire period (April–September), the cumulative mean abnormal returns across all three indices converge to zero. This result is consistent with the Efficient Market Hypothesis (EMH), which posits that in the long run, abnormal returns tend to dissipate as prices adjust to available information (Fama, 1970). In other words, although Islamic indices may show temporary deviations from expected returns, they ultimately revert toward equilibrium. ISSI JI70 JII Min -.01157690 -.00812600 -.01004700 Max .00347020 .52112700 .00879163 June N 18 18 18 Mean .0020004417 .0024768317 .0029687011 SD .00441781297 .00686463713 .00731136839 Min -.00441080 -.00846270 -.00936290 Max .01025575 .01778264 .01802703 July N 23 23 23 Mean .0015207926 -.0000590722 -.0002678326 SD .00528750396 .00611938616 .00675509851 Min -.00924120 -.01459290 -.01578730 Max .01010288 .01017218 .01009437 August N 20 20 20 Mean -.0001114025 -.0024702120 -.0081179575 SD .00525852678 .00764248462 .02404591107 Min -.01167320 -.01453620 -.10316600 Max .00833088 .01533562 .01659600 September N 21 21 21 Mean .0014758048 .0019608329 .0017842776 SD .00411658459 .00506568243 .00535353640 Min -.00861920 -.00702040 -.01277990 Max .00693853 .01086593 .00906111 April - September N 114 114 114 Mean 0 0 0 SD .0009910779 .0055151997 -.0000069704 Min .00470921796 .04919609269 .01240815104 Max -.01167320 -.01459290 -.10316600 Oktavera Rizki (2025), Global Journal of Economic and Finance Research 02(10): 1081-1092 DOI URL:https://doi.org/10.55677/GJEFR/11-2025-Vol02E10 pg. 1089 Taken together, these findings reveal several important implications. First, while Islamic indices in Indonesia occasionally deliver positive abnormal returns, these are generally not persistent, suggesting that opportunities for arbitrage are limited. Second, narrower indices such as JII and JI70 tend to exhibit higher volatility, making them riskier but also potentially more rewarding in the short term. Lastly, the relative stability of ISSI implies that broad-based Islamic indices may appeal to risk-averse investors seeking exposure to sharia-compliant equities without significant abnormal fluctuations. Table 5. Comparison of Abnormal Returns Between Islamic Index t df Sig. (2-tailed) ISSI - JI70 -1.000 113 .319 ISSI - JII 1.000 113 .319 JI70 - JII 1.177 113 .242 Table 5 presents the results of pairwise t-tests comparing abnormal returns across the three Islamic indices in Indonesia: ISSI, JI70, and JII. The purpose of this analysis is to determine whether significant differences exist between the indices in terms of their ability to generate abnormal returns. The results reveal that none of the comparisons yield statistically significant differences at the 5% level. Specifically, the mean difference in abnormal returns between ISSI and JI70 is not significant (t = –1.000, p = 0.319), nor is the difference between ISSI and JII (t = 1.000, p = 0.319). Similarly, the comparison between JI70 and JII produces a non-significant result (t = 1.177, p = 0.242). These findings suggest that, despite differences in index construction and coverage, the abnormal returns of the three Islamic indices do not statistically diverge. This outcome can be interpreted in the context of Islamic finance principles and efficient market behaviour. The lack of significant abnormal returns across indices supports the Efficient Market Hypothesis (EMH), which posits that securities prices fully reflect all available information, leaving little room for consistent abnormal performance (Fama, 1970). In line with this, investors cannot systematically outperform the market by selecting one Islamic index over another. Another explanation lies in the structural similarities among the indices. Although the ISSI covers the broadest universe of shariacompliant stocks, while JI70 and JII are narrower and more concentrated, they are all derived from the same screening methodology set by the Indonesian Sharia Stock Screening criteria. This methodological overlap results in strong co-movements across indices, thereby limiting performance differentials. Prior studies confirm that Islamic indices across different regions often exhibit high levels of comovement, especially when exposed to the same macroeconomic and sectoral shocks (Al-Khazali, Lean, & Samet, 2014; Majdoub & Mansour, 2014). Moreover, the insignificant differences reflect that the diversification benefits between broader and narrower Islamic indices may be marginal. While narrower indices such as JII tend to exhibit higher volatility due to concentration risk, their average abnormal returns over time converge with those of broader indices such as ISSI. This finding resonates with El Khatib and Hatemi-J (2017), who noted that Islamic indices often display asymmetric volatility but not necessarily persistent differences in return performance. In practical terms, these results have two implications. First, investors choosing between ISSI, JI70, and JII should not expect systematically higher abnormal returns from one index over another; instead, their choice may depend on individual risk tolerance and portfolio objectives. Second, the insignificant differences suggest that the Islamic capital market in Indonesia is relatively efficient, offering limited arbitrage opportunities based on index selection alone. Table 6. Cumulative Abnormal Returns of Islamic Index Cumulative Abnormal Return ISSI JI70 JII April 0,02235596 0,06222991 0,0703238 May -0,009123 0,00527739 0,00649455 June 0,0388742 0,04458304 0,05343661 July 0,03497814 -0,0013586 -0,0061602 August -0,0022281 -0,0494042 -0,0695096 September 0,03099188 0,04117751 0,03746976 April - September 0,12495707 0,10994811 0,09090516 Table 6 reports the Cumulative Abnormal Returns (CARs) of three major Islamic indices in Indonesia: ISSI, JI70, and JII, covering the period from April to September. The analysis provides insights into the aggregate abnormal performance of these indices during the observation window. The analysis of cumulative abnormal returns (CARs) from April to September reveals several important patterns across the three Islamic indices. In April, all indices generated positive CARs, with JII (0.0703) achieving the highest performance, followed by