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Covid-19 and informational efficiency in Asian emerging markets: a comparative study of conventional and Shariah-compliant stocks

Muhammad Wajid Raza (Department of Management Sciences, Shaheed Benazir Bhutto University, Sheringal, Pakistan)
Bahrawar Said (Department of Commerce and Management Sciences, University of Malakand, Chakdara, Pakistan and Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania, USA)
Ahmed Elshahat (Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania, USA)

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 1 December 2022

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Abstract

Purpose

This study aims to provide a comparative insight into the level of informational efficiency and irregularities of Shariah-compliant stocks and conventional stocks in three emerging markets, namely, China, Malaysia and Pakistan. The empirical evidence is provided for pre-crisis and crisis periods caused by the Covid-19 pandemic.

Design/methodology/approach

Informational efficiency is measured using the variance ratio (VR) Test developed by Kim (2006). The Approximate Entropy (ApEn) Metrics is used to investigate the level of irregularities in stock prices caused by the pandemic.

Findings

All the three emerging markets in the sample are not immune to the crisis caused by Covid-19 pandemic. The level of informational efficiency of both the Shariah-compliant and conventional stock is affected by the crisis. However, the former exhibits relatively high level of informational efficiency and stability in returns as compared to more volatility of conventional stocks.

Practical implications

This study provides market agents and policy makers with a robust assessment of the impact of the Covid-19 pandemic on informational efficiency of Shariah-compliant and conventional stocks. Relatively high informational efficiency of Shariah-compliant stocks indicates that they are more transparent and that investors can trust the Shariah-compliant stocks more. This higher level of transparency and trust leads to more steady returns and lower levels of risk even during turbulent time like Covid-19. Investors can gain superior returns by conducting fundamental analysis and investing in index funds.

Originality/value

To the best of the authors’ knowledge, this is the first study that highlights the difference in informational efficiency of conventional stocks and Shariah-compliant stocks in the crisis period caused by Covid-19. Unlike previous studies, this study uses firm level data which enables firm-wise assessment of informational efficiency.

Keywords

Citation

Raza, M.W., Said, B. and Elshahat, A. (2022), "Covid-19 and informational efficiency in Asian emerging markets: a comparative study of conventional and Shariah-compliant stocks", International Journal of Islamic and Middle Eastern Finance and Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IMEFM-01-2022-0041

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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