GEOGRAFIA Online TM Malaysian Journal of Society and Space 12 issue 7 (75 - 82) 75 © 2016, ISSN 2180-2491 Integration of Islamic real estate investment trusts in Malaysia: Is it an issue for investors? Mohd Yahya Mohd Hussin 1 , Noor Hashimah Husaini 1 , Fidlizan Muhammad 1 , Azila Abdul Razak 1 , Fatimah Salwa Abdul Hadi 1 1 Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, Tanjong Malim, Perak Correspondence: Mohd Yahya Mohd Hussin (email: yahya@fpe.upsi.edu.my) Abstract Various stakeholders and academicians have shown their interest in the study of capital market instruments such as stock market, bond and real estate investment trust (REITs). As such, there rises a need to review the importance of capital markets integration. This study took a closer look at the co-integration between Islamic real estate investment trust counters in Malaysia by applying the Vector Auto Regression (VAR) method. Data were generated by processing monthly data from January 2007 to December 2013 obtained from authorized sources. The findings indicated that there was no long-run or equilibrium relationship between the Islamic al-Aqar, al-Hadharah and Axis counters. Based on the results, it can be concluded that the Islamic REIT companies in Malaysia do not integrate each other in the long run. This will create opportunity for investors to diversify their investment portfolios in Malaysia. As seen from the Granger causality view, the Hadharah and Axis returns were driven by al-Aqar returns in the short run. Keywords: co-integration, Granger causality, investment portfolios, Islamic real estate investment trust, stake holders, variance decomposition Introduction Various stakeholders and academicians have shown their interest in the study of capital market instruments such as stock market, bond and real estate investment trust (REITs). As such, there rises a need to review the importance of capital markets integration. Firstly, it provides further opportunities in risk sharing among integrated stock market at a cost of taking away the diversification benefit of international investment (Siskawati, 2011). Secondly, the information about capital market instruments integration could be used by investors to set investment strategies based on the potential benefits, which could be gained by diversifying in different products (Kassim, 2010). Thirdly, as stated by Mohan (2005), capital market integration could generate a higher productivity and economic growth across the economy by stimulating domestic savings and investments. Many researchers have studied the stock market integration among particular countries (see in Narayan et al. (2004), Floros et al. (2005), Majid et al. (2008) and Hussin et al.(2013). In relation to the studies of market co-integration in the stock markets, there is little empirical research available, which examines the long run equilibrium among REITs counters, specifically in Malaysia. Therefore, this paper aims to show its contribution to the existing literature by providing new evidence on Islamic Real Estate Investment Trust (I-REITs) integration nexus, especially in the context Al-Aqar Healthcare REIT (Al- Aqar), Al-Hadharah Bousted REIT (Al-Hadaharah) and Axis REIT Manager Berhad (Axis). This paper will be laid out in the following structure: Section 2 provides an overview of Islamic Real Estate