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Critical assessment of Islamic financial assets pricing in South-East Asia: evidence from NARDL modelling

Monsurat Ayojimi Salami (IIUM Institute of Islamic Banking and Finance (IIIBF), International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 13 January 2021

Issue publication date: 11 August 2021

271

Abstract

Purpose

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and Sukuk) in the three South-East Asia countries such as Malaysia, Indonesia and Brunei to provide necessary information to the policymakers and Islamic finance investors for making a sound decision.

Design/methodology/approach

This study used secondary data and used the nonlinear autoregressive distributed lags (NARDL) model to estimate the reaction of Islamic financial assets in South-East Asia towards price changes. Wald-test was used to diagnose the final model.

Findings

The result of this study shows that the majority of Islamic financial assets in the three South-East Asia countries exhibit positive and negative long-run effects. The findings reveal a long-run asymmetric relationship that supports rockets and feathers effects. The indication is that Islamic financial assets pricing deviates from weak form EMH. Pricing of Islamic financial assets reveals unfair pricing.

Practical implications

Price adjustment of Islamic financial assets requires urgent attention of policymakers to prevent Sharīʿah non-compliant risk. Therefore, the Shariah advisory board in those countries, Accounting and Auditing Organization for Islamic Financial Institutions and Islamic Financial Services Board are hereby advised to act on the factors that might enable rockets and feathers effects on the pricing of Islamic financial assets, as the long-run asymmetric relationship is established.

Originality/value

This study is novel as it critically and simultaneously examines the pricing behaviour of Islamic financial assets in the three South-East Asian countries. The findings from the study provide vital information on the pricing behaviour of Islamic financial assets to the policymakers and investors.

Keywords

Citation

Salami, M.A. (2021), "Critical assessment of Islamic financial assets pricing in South-East Asia: evidence from NARDL modelling", Journal of Financial Reporting and Accounting, Vol. 19 No. 3, pp. 474-494. https://doi.org/10.1108/JFRA-12-2019-0175

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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