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Article
Publication date: 13 January 2021

Monsurat Ayojimi Salami

This study aims to critically examine the pricing of Islamic financial assets (Sharīʿah-compliant assets, Sharīʿah-compliant securities, Sharīʿah-compliant financing and…

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.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 3
Type: Research Article
ISSN: 1985-2517

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Book part
Publication date: 23 December 2005

David Ng and Mehdi Sadeghi

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss…

Abstract

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion asset pricing finds conclusive evidence that estimations match market equity premium and volatility using simulation data. We find that within its empirical application, the estimated errors are comparable to errors estimated from the capital asset pricing model. This study of the correlations between rational and irrational asset pricing model from the empirical results finds validity for both estimated values. Finally, we see the importance of cultures, economic development and financial development on asset pricing through an empirical examination of five pacific-basin countries in the estimation of asset pricing models.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

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Book part
Publication date: 30 November 2011

Massimo Guidolin

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models…

Abstract

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

Details

Missing Data Methods: Time-Series Methods and Applications
Type: Book
ISBN: 978-1-78052-526-6

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Article
Publication date: 31 December 2019

Vaibhav Lalwani and Madhumita Chakraborty

The purpose of this paper is to compare the performance of various multifactor asset pricing models across ten emerging and developed markets.

Abstract

Purpose

The purpose of this paper is to compare the performance of various multifactor asset pricing models across ten emerging and developed markets.

Design/methodology/approach

The general methodology to test asset pricing models involves regressing test asset returns (left-hand side assets) on pricing factors (right-hand side assets). Then the performance of different models is evaluated based on how well they price multiple test assets together. The parameters used to compare relative performance of different models are their pricing errors (GRS statistic and average absolute intercepts) and explained variation (average adjusted R2).

Findings

The Fama-French five-factor model improves the pricing performance for stocks in Australia, Canada, China and the USA. The pricing in these countries appears to be more integrated. However, the superior performance in these four countries is not consistent across a variety of test assets and the magnitude of reduction in pricing errors vis-à-vis three- or four-factor models is often economically insignificant. For other markets, the parsimonious three-factor model or its four-factor variants appear to be more suitable.

Originality/value

Unlike most asset pricing studies that use test assets based on variables that are already used to construct RHS factors, this study uses test assets that are generally different from RHS sorts. This makes the tests more robust and less biased to be in favour of any multifactor model. Also, most international studies of asset pricing tests use data for different markets and combine them into regions. This study provides the evidence from ten countries separately because prior research has shown that locally constructed factors are more suitable to explain asset prices. Further, this study also tests for the usefulness of adding a quality factor in the existing asset pricing models.

Details

Managerial Finance, vol. 46 no. 3
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 26 June 2009

Wagdy M. Abdallah and Ahmed S. Maghrabi

The purpose of this paper is to investigate the way that multinational companies can design effective transfer pricing systems of intangible assets with special…

Abstract

Purpose

The purpose of this paper is to investigate the way that multinational companies can design effective transfer pricing systems of intangible assets with special consideration of the effect of e‐commerce within the restricted regulations of tax authorities of American and Foreign governments.

Design/methodology/approach

The new trends in transfer pricing and the nature of intangible assets are discussed. Different strategies of multinationals' ownership techniques are examined. The selection of the appropriate transfer pricing methods is analyzed.

Findings

The paper concludes that the most effective transfer pricing system should include: tax and non‐tax strategies to manage global earnings of the company; objectives behind the system; potential global income tax consequences; selection of the best transfer pricing method; and key issues to help in avoiding tax audits in the future.

Originality/value

This paper fulfills an urgent need for an effective transfer system of the e‐commerce to meet tax regulations of different countries.

Details

International Journal of Commerce and Management, vol. 19 no. 2
Type: Research Article
ISSN: 1056-9219

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Article
Publication date: 7 November 2016

Ralph Adler, Carolyn Stringer and Max Yap

The valuation and pricing of information assets often presents managers with substantial challenges. Information assets are usually highly unique, lack objective price

Abstract

Purpose

The valuation and pricing of information assets often presents managers with substantial challenges. Information assets are usually highly unique, lack objective price benchmarks, have a high potential for piracy, can be simultaneously accessed and enjoyed by multiple users and generally feature significant information asymmetry between sellers and buyers. This paper aims to discuss five methods that can be used to value/price information assets.

Design/methodology/approach

This is a conceptual paper that draws and builds upon the multidisciplinary pricing literature.

Findings

A tree diagram, one that matches particular combinations of information asset features with each of the five methods, is presented to assist practitioners with their choice of valuation/pricing method.

Originality/value

The pricing of information assets is a challenging and even daunting task. The linkages specified by the paper’s model, and in particular its matching of information asset characteristics with specific valuation/pricing methods, offers a decision tool that does not currently exist. This tool is capable of supporting practitioner decision-making and highlights avenues for future scholarly research.

Details

Pacific Accounting Review, vol. 28 no. 4
Type: Research Article
ISSN: 0114-0582

Keywords

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Book part
Publication date: 25 July 1997

Les Gulko

Abstract

Details

Applying Maximum Entropy to Econometric Problems
Type: Book
ISBN: 978-0-76230-187-4

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Article
Publication date: 3 April 2017

James R. DeLisle and Terry V. Grissom

The purpose of this paper is to investigate changes in the commercial real estate market dynamics as a function of and conditional to the shifts in market state-space…

Abstract

Purpose

The purpose of this paper is to investigate changes in the commercial real estate market dynamics as a function of and conditional to the shifts in market state-space environment that can influence agent responses.

Design/methodology/approach

The analytical design uses a comparative computational experiment to address the performance of property assets in the current market based on comparison with prior structural patterns. The latent variables developed across market sectors are used to test agent behavior contingent on the perspectives of capital asset pricing conditionals (CAPM) and a behavioral momentum/herd construct. The state-space momentum analysis can assist the comparative analysis of current levels and shifts in property asset performance given the issues that have arisen with the financial crisis of 2007-2009.

Findings

An analytic approach is employed framed by a situation-dependent model. This frame considers risk profiles characterizing the perspectives and preferences guiding a delineated market state. This perspective is concerned with the possibility of shifts in market momentum and representativeness conditioning investor expectations. It is observed that the current market (post-crisis) has changed significantly from the prior operations (despite the diversity observed in prior market states). The dynamics of initial findings required an additional test anchored to the performance of the general capital market and the real economy across time. This context supports the use of a modified CAPM model allowing the consideration of opportunity cost in a space-time dynamic anchored with the consideration of equity, debt, riskless asset and liquidity options as they varied for the representative agents operating per market state.

Research limitations/implications

This paper integrates neoclassical and behavioral economic constructs. Combines asset pricing with prospect theory and allows the calculation of endogenous time-preferences, risk attitudes and formulation and testing of hyperbolic discounting functions.

Practical implications

The research shows that market structure and agent behavior since the financial crisis has changed from the investment and valuation perspectives operating as observed and measured from 1970 up to 2007. In contradiction to the long-term findings of Reinhart and Rogoff (2008), but in compliance with common perspectives and decision heuristics often employed by investors, this time things have changed! Discounting and expected rates of return are dynamic and are hyperbolic and not constant. Returns and investment for property assets are situational (market state-space specific) and offer a distinct asset class, not appropriately estimated by many of the traditional financial models.

Social implications

Assist in supporting insights to measure in errors and equations that result in inefficient resource allocation and beta discounting that supports the financial crisis created by assets subject to long-term decision needs (delta function).

Originality/value

The paper offers a combination and comparison of neoclassic asset pricing using a modified CAPM (two-pass) approach within the structural frame of Kahneman and Tversky’s (1979) prospect theory. This technique allows the consideration of the effects of present bias, beta-delta functions and the operation of the Allais Paradox in market states that are characterized by gains and losses and thus risk aversion and risk seeking behavior. This ability for differentiation allows for the development of endogenous time-preferences and hyperbolic discounting factors characteristic of commercial property investment.

Details

Journal of Property Investment & Finance, vol. 35 no. 3
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 29 April 2014

Alexander Scholz, Stephan Lang and Wolfgang Schaefers

Understanding the pricing of real estate equities is a central objective of real estate research. This paper aims to investigate the impact of liquidity on European real…

Abstract

Purpose

Understanding the pricing of real estate equities is a central objective of real estate research. This paper aims to investigate the impact of liquidity on European real estate equity returns, after accounting for well-documented systematic risk factors.

Design/methodology/approach

Based on risk factors derived from general equity data, the authors extend the Fama-French time-series regression approach by a liquidity factor, using a pan-European sample of 272 real estate equities.

Findings

The empirical results indicate that liquidity is a significant pricing factor in real estate stock returns, even after controlling for market, size and book-to-market factors. In addition, the authors detect that real estate stock returns load predominantly positively on the liquidity risk factor, suggesting that real estate equities tend to behave like illiquid common equities. These findings are underpinned by a series of robustness checks. Running a comparative analysis with alternative factor models, the authors further demonstrate that the liquidity-augmented asset-pricing model is most appropriate for explaining European real estate stock returns.

Research limitations/implications

The inclusion of sentiment and downside risk factors could provide further insights into real estate asset pricing in European capital markets.

Originality/value

This is the first study to examine the role of liquidity as a systematic risk factor in a pan-European setting.

Details

Journal of European Real Estate Research, vol. 7 no. 1
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 20 January 2020

Mohamad Hafiz Hazny, Haslifah Mohamad Hasim and Aida Yuzy Yusof

The capital asset pricing model (CAPM) is the most widely used asset pricing model that measures risk–return relationship. The CAPM is based on Markowitz’s mean variance…

Abstract

Purpose

The capital asset pricing model (CAPM) is the most widely used asset pricing model that measures risk–return relationship. The CAPM is based on Markowitz’s mean variance analysis. The advancement of Islamic finance leads to the question whether or not the practice of modern investment theories and analyses such as the Markowitz’s mean variance analysis and CAPM are in accordance to shariah and could be used in pricing Islamic financial assets. Therefore, this paper aims to present a review of the CAPM and to discourse the set of assumptions underlying the model in terms of shariah compliance.

Design/methodology/approach

Although most of the assumptions are not contradictory to shariah principles, there are Islamic variables such as prohibition of short selling, purification and zakat that should be taken into consideration when pricing Islamic financial assets. We then develop a mathematical model which is a modification of the traditional CAPM that incorporates principles of Islamic finance and integrating zakat, purification of return and exclusion of short sales.

Findings

As a proof-of-concept, this paper presents the results of an empirical study on the proposed shariah-compliant CAPM in comparison to the traditional CAPM. The results show that the proposed Islamic CAPM is appropriate and applicable in examining the relationship between risk and return in the Islamic stock market.

Originality/value

This study contributes to existing body of knowledge by presenting an algorithm and mathematical derivation of the shariah-compliant CAPM which has been lacking in the literature of Islamic finance. The paper offers a novel approach in pricing Islamic financial assets in accordance to shariah, advocated by modern investment theories of Markowitz’s mean variance analysis and CAPM.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

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