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Shariah compliance and stock price synchronicity: evidence from India

Omar Farooq (School of Business, ADA University, Baku, Azerbaijan)
Neveen Ahmed (Institute of National Planning, Cairo, Egypt) (University of Hertfordshire, Cairo, Egypt)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 2 August 2022

Issue publication date: 21 February 2024

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Abstract

Purpose

This paper aims to document the effect of shariah compliance on stock price synchronicity.

Design/methodology/approach

This paper uses the data of non-financial firms from India and various estimation procedures (pooled OLS and instrument variable regression) to test the arguments presented in this paper. The time period of the study ranges between 2000 and 2019.

Findings

The results show that shariah-compliant firms have significantly higher levels of synchronicity than non-compliant firms. The findings hold after comprehensive inclusion of relevant controls and to a number of sensitivity tests. The authors attribute this result to the unique financial characteristics (lower levels of leverage, liquidity and cash) of shariah-compliant firms. The paper argues that these characteristics are related to better information environment which is responsible for higher levels of synchronicity. The paper also shows that the difference in the synchronicity levels of the two groups is less pronounced for those shariah-compliant firms that have relatively high levels of leverage and cash ratios.

Originality/value

The authors believe that this is an initial attempt to document the impact of shariah compliance on stock price synchronicity.

Keywords

Citation

Farooq, O. and Ahmed, N. (2024), "Shariah compliance and stock price synchronicity: evidence from India", International Journal of Emerging Markets, Vol. 19 No. 3, pp. 752-774. https://doi.org/10.1108/IJOEM-07-2021-1149

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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