This paper empirically examines the efficient market hypothesis (EMH) in the Islamic stock market
namely Jakarta Islamic Index by emphasizing on the random walk behavior and nonlinearity. In
the first step, we employ Brock et al. (1996) test to examine the presence of nonlinear behavior in
Jakarta Islamic Index. The evidence of nonlinear behavior in the indices, motivate us to use nonlinear
ESTAR unit root test procedure recently developed by Kapetanios et al. (2003) and Kruse (2011).
The nonlinear unit root test procedure fail to rejects the null hypothesis of unit root for the indices,
suggesting that Jakarta Islamic Index characterized by random walk process supporting the theory
of efficient market hypothesis. In addition, Lumsdaine and Papel (LP) test identified significant structural
breaks in the index series.
