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Abstract

The outbreak of COVID-19 marked not only a global health emergency but also a strategic shock with profound economic implications, particularly for developing economies. This study investigates how Sharia-compliant stock markets in selected OIC countries responded to the World Health Organization’s declaration of COVID-19 as a global pandemic on March 11, 2020. Using an event study approach, the analysis focuses on abnormal returns (AR) from six major Islamic indices representing Indonesia, Malaysia, Saudi Arabia, the United Arab Emirates, Pakistan, and Qatar. The results reveal that the pandemic announcement carried significant informational content, as reflected in the notable ARs across all markets. Yet, the nature of the reactions varied: while Indonesia, Pakistan, and the UAE displayed predominantly positive ARs, Malaysia, Saudi Arabia, and Qatar reacted negatively. Beyond these immediate fluctuations, most markets exhibited no persistent differences in average ARs before and after the event—except in Pakistan—suggesting a tendency toward semi-strong form market efficiency. Importantly, the findings highlight the role of domestic macroeconomic resilience, particularly GDP growth, in shaping investor sentiment. Sectoral evidence also points to the defensive performance of Sharia-compliant stocks in healthcare, telecommunications, and consumer goods, which provided stability during the crisis. Taken together, these results underscore the vulnerability and adaptability of Islamic financial markets to global strategic shocks, while reaffirming the critical importance of economic fundamentals in sustaining investor confidence in the broader OIC context.

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