Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 6 December 2019
Issue publication date: 17 February 2020
Abstract
Purpose
The purpose of this paper is to present the Islamic stock and Sukuk market efficiency and focus on the presence of investor herding behaviour (HB) captured by Hurst exponent estimation.
Design/methodology/approach
The Hurst exponent was estimated with various methods. The authors studied the evolving efficiency of the “Dow Jones” indices from 1 January 2010 to 30 December 2016 using a rolling sample of the Hurst exponent. In addition, they used a time-varying parameter method based on the Hurst of delayed returns. After that, the robust Hurst method was considered. In the next step, the efficiency of the different activity types of Islamic bonds was studied using an efficiency index. Finally, the Hurst exponent estimates were applied to assess the presence of HB.
Findings
The results show that, firstly, there’s a strong correlation between the “DJIM” and “DJSI” prices and returns. Secondly, by using robust Hurst estimate, it is observed that the “DJIM” is the most efficient market. The Hurst exponent estimation results show that HB is more intensive in the Islamic stock market. These results indicate also the inexistence of this behaviour in the studied Sukuk market.
Research limitations/implications
Sukuk as Islamic financial assets is recent. Their relative time series are not long enough to apply the long memory approach. Furthermore, this work can be extended to study other Islamic financial markets.
Practical implications
Herding affects risk-return characteristics of assets and has an impact on asset pricing models. Practitioners are interested in understanding herding and its timing as it might create profitable trading opportunities.
Social implications
This work analyses the impact of Islamic principles on the financial markets and their ability to understand some behavioural biases.
Originality/value
This study contributes to the literature by identifying the efficiency and the presence of HB with Hurst exponent estimation in Islamic markets.
Keywords
Citation
Mnif, E., Salhi, B. and Jarboui, A. (2020), "Herding behaviour and Islamic market efficiency assessment: case of Dow Jones and Sukuk market", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 13 No. 1, pp. 24-41. https://doi.org/10.1108/IMEFM-10-2018-0354
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited