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21 – 30 of over 6000The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global…
Abstract
Purpose
The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.
Design/methodology/approach
It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.
Findings
The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.
Research limitations/implications
The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.
Practical implications
The findings offer some highlights to researchers, portfolio managers and policymakers.
Originality/value
The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.
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Joseph Falzon and Elaine Bonnici
This paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European…
Abstract
Purpose
This paper empirically investigates the performance of Islamic funds, which have been praised for weathering the 2008 financial storm relatively well and compares it to a European product designed to protect the most vulnerable of investors, UCITS funds.
Design/methodology/approach
This paper builds on 128 time-series regressions using various factor models to analyse the risk-return relationship of 242 Islamic and UCITS funds relative to a market benchmark, over a 10-year period starting January 2006, to capture severe bear and bull market conditions.
Findings
Islamic funds do not face a competitive disadvantage arising from their strict compliance with Sharīʿah principles, and their performance and investment style is relatively similar to UCITS schemes.
Practical implications
Islamic funds represent a low risk investment due to their very mild betas. Therefore, when forming part of a diversified portfolio, they can act as a hedging tool against adverse market movements.
Social implications
Muslim investors are not punished relative to conventional retail investors when following their own beliefs. Other investors can consider Islamic funds in their portfolio allocation, especially those who seek socially and ethically responsible investments.
Originality/value
This paper fills a lacuna in the existing literature, because the sample is made up of Islamic funds established worldwide and includes not only equity, but also fixed income and mixed allocation funds.
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Ainulashikin Marzuki and Andrew Worthington
– The purpose of this paper is to compare the fund flow – performance relationship for Islamic and conventional equity funds in Malaysia.
Abstract
Purpose
The purpose of this paper is to compare the fund flow – performance relationship for Islamic and conventional equity funds in Malaysia.
Design/methodology/approach
The authors use panel regression models to estimate the relationship between fund flows and performance for Islamic and conventional equity funds in Malaysia from 2001 to 2009. The data for each fund include fund flows, assets under management, management expenses, fund age, portfolio turnover, fund risk and return and the number of funds in the fund’s family. The authors also include market returns and year effects. The sample consists of 127 Malaysian equity funds with at least 65 per cent domestic equity holdings comprising 35 Islamic and 92 conventional equity funds.
Findings
Islamic fund investors respond to performance in much the same way as conventional fund investors, increasing fund flows to better performing funds and decreasing fund flows to poorer performing funds. However, there is also evidence that Islamic fund investors are relatively less responsive toward poorly performing Islamic funds, suggesting an asymmetry in the expected positive fund flow – performance relationship, but only for Islamic fund investors. When choosing funds based on other fund attributes, Islamic fund investors again exhibit similar behaviour, and like conventional fund investors direct larger percentage fund flows into smaller funds as well as funds with larger past fund flows and higher expense ratios.
Research limitations/implications
The authors were only able to access data on annual net fund flows not quarterly or monthly fund inflows and outflows as usual in developed markets and this may obscure some important aspects of investor decision-making. There is also insufficient data for matched-sample techniques, which may better control for fund-specific characteristics.
Practical implications
Islamic funds like conventional funds will experience increased fund flows with better performance and vice versa. However, Islamic fund investors appear somewhat less likely to remove monies from poorly performing funds. The authors believe this is because investors either place a premium on the non-return attributes of Shariah-compliant funds and/or wish to avoid search costs in finding another suitable Islamic fund. Apart from this, Islamic and conventional fund investors behave in a similar manner, and the authors believe that this is possible in Malaysia given the size and diversity of its Islamic fund sector.
Originality/value
This paper is one of the very few empirical studies concerning the behaviour of Islamic investors, particularly in Malaysia, primarily because of limitations in data availability.
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The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences …
Abstract
Purpose
The purpose of this paper is to present an analysis of current practices of Islamic mortgages in the light of the principles of Islamic financial system, to document divergences – if any. A subsidiary goal is to develop an Islamic Mortgage Model (IMM) based on Musharakah principles.
Design/methodology/approach
The author documents theoretical underpinnings of risk-return sharing from the Shari’ah perspective. A comparative study of conventional and Islamic mortgages is completed; existing practice of Islamic mortgages analyzed in the light of Musharakah principles and divergences identified. IMM is developed after taking divergences and Musharakah principles into considerations. A housing case is used to highlight differences (in financial terms) under multiple methods and scenarios.
Findings
Study documents multiple divergences from Musharakah principles in the existing practice of Islamic mortgages including ignorance of market pricing in the negotiation of rentals and trading of equity units, and transfer of all ownership risks and rewards (vacancy, damage, destruction and market) to one partner (i.e. customer). Practice is divergent from principles in the area of economic substance. Modified IMM is developed by taking into account Musharakah principles; and differences highlighted by calculating financial figures – to determine financial rights and liabilities of the parties.
Practical implications
Divergence from the principles of risk-return sharing leads to failure in the achievement of Islamic finance objective of equitable distribution of wealth. Moreover, protection of capital for financier reduces the market abilities to achieve financial stability by matching credit expansion with the rise in the real economy. Shari’ah boards and regulators, as well as, management of Islamic banking industry are expected to incorporate proposed changes in-practice for the realization of Islamic finance objectives.
Originality/value
This study contributes to Islamic finance literature in the area of risk-return sharing. Based on important objectives of Islamic finance – equitable distribution of wealth and financial stability – divergences identified and a modified IMM in the light of Musharakah principles is presented. Descriptive rules are transformed into financial figures to document financial rights and liabilities of the concerned parties.
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Issam Bousalam and Moustapha Hamzaoui
This paper aims to expand the literature on performance and volatility of Islamic funds and indices in comparison to their conventional unscreened counterparts, by studying the…
Abstract
Purpose
This paper aims to expand the literature on performance and volatility of Islamic funds and indices in comparison to their conventional unscreened counterparts, by studying the Moroccan case considering the recent introduction of Islamic finance in the country toward the end of 2015.
Design/methodology/approach
As there are still no Shariah-compliant indices in Morocco, the authors first applied four Shariah screening methodologies of some of the world leading equity index providers (i.e. Dow Jones, FTSE, S&P and MSCI) to screen the public listed companies in Casablanca Stock Exchange for Shariah compliance. Next, the authors constructed four Islamic float-weighted indexes for which they modeled the dynamic volatility using an extension of the AutoRegressive Conditional Heteroskedasticity models, namely, EGARCH(1,1).
Findings
The findings show that the screening process resulted in a well-diversified universe of Shariah-compliant stocks (25.6 per cent) to invest in. Furthermore, it is found that constructed Islamic indices outperformed the broad-based Moroccan All Shares Index (MASI) during the considered period of analysis (January 2013 to December 2014), and their long-run volatility is higher. This indicates that investors in Shariah-compliant stocks do not sacrifice financial performance for their risky investment. The estimates of the model show that volatility for the MASI is more persistent and takes longer time to die, and the leverage effect is positive for all indices, meaning that volatility of indexes’ returns is influenced more by good news than bad news, a result that is in contrast to other studies for developed countries.
Practical implications
On the arrival of the new banking law that introduced Islamic finance for the first time in Morocco, the authors suppose that these results could be very helpful for the Moroccan financial authorities in consideration with the construction of Islamic equity indices for Muslim investors seeking to invest ethically in accordance to their religious convictions but also for index funds managers and other equity market players.
Originality/value
The present study is the first of its kind in Morocco to construct Islamic indices using Shariah screening methodologies for which the volatility is modeled using an EGARCH(1,1) dynamic volatility model.
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Using a convenient tail-risk measure of performance, this paper aims to explore the extent to which incorporating higher statistical moments such as an assets skewness and…
Abstract
Purpose
Using a convenient tail-risk measure of performance, this paper aims to explore the extent to which incorporating higher statistical moments such as an assets skewness and kurtosis, provides further insight into the potential benefits of asset-class diversification within the realm of Islamic finance.
Design/methodology/approach
The authors use Engle’s (2002) DCC-GARCH model to study the dynamic conditional correlations between asset classes. Furthermore, the authors use the modified value-at-risk (Favre and Galeano, 2002), which incorporates higher statistical moments, to measure the performance of portfolios during both crisis and bullish regimes.
Findings
The most important finding relates to the estimation of portfolio tail-risk. In particular, the authors find that using a standard two-moment value-at-risk (VaR) measure, which assumes normally distributed returns, rather than a four-moment VaR, which incorporates an asset skewness and kurtosis, can lead to a substantial underestimation of portfolio risk during the most extreme market conditions.
Originality/value
This paper contributes to the extremely limited research considering higher-moments within the realm of Islamic portfolio-management. The results suggest that Islamic portfolio managers should remain cognisant of the skewness and kurtosis parameters of their assets. Ignoring higher-moments could induce misleading inferences and would, therefore, constitute imprudent risk-management.
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Siong Min Foo, Nazrul Hisyam Ab Razak, Fakarudin Kamarudin, Noor Azlinna Binti Azizan and Nadisah Zakaria
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Abstract
Purpose
This study comprehensively aims to review the key influential and intellectual aspects of spillovers between Islamic and conventional financial markets.
Design/methodology/approach
The study uses the bibliometric and content analysis methods using the VOSviewer software to analyse 52 academic documents derived from the Web of Sciences (WoS) between 2015 and June 2022.
Findings
The results demonstrate the influential aspects of spillovers between Islamic and conventional financial markets, including the leading authors, journals, countries and institutions and the intellectual aspects of literature. These aspects are synthesised into four main streams: research between stock indexes; studies between stock indexes, oil and precious metal; works between Sukuk, bond and indexes; and empirical studies review. The authors also propose future research directions in spillovers between Islamic and conventional financial markets.
Research limitations/implications
Our study is subject to several limitations. Firstly, the authors only used the WoS database. Secondly, the study only includes papers and reviews written in English from the WoS. This study assists academic scholars, practitioners and regulatory bodies in further exploring the suggested issues in future studies and improving and predicting economic and financial stability.
Originality/value
To the best of the authors’ knowledge, no extant empirical studies have been conducted in this area of research interest.
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Azhar Abdul Rahman, Mohd Azlan Yahya and Mohd Herry Mohd Nasir
The purpose of this paper is to compare the criteria used among Islamic Indices, specifically between the Kuala Lumpur Stock Exchange Shari'ah Index (KLSESI) and the Dow Jones…
Abstract
Purpose
The purpose of this paper is to compare the criteria used among Islamic Indices, specifically between the Kuala Lumpur Stock Exchange Shari'ah Index (KLSESI) and the Dow Jones Islamic Market Index (DJIM) in screening a permissible company for investment purposes. The two controversial criteria examined are: level of debt and level of liquidity of company.
Design/methodology/approach
The paper investigates the 642 companies listed on the Bursa Malaysia in 2006 as approved Shariah's compliant companies by the Shari'ah Advisory Council of the KLSE.
Findings
Overall, the results reveal that the KLSESI does not use both the criteria set by the DJIM as its measures during the screening process. As for the level of debt criterion, the results show that 44.07 percent of the companies listed under the KLSESI are highly geared. These companies depend heavily on debt to finance their capital. However, the results for the level of liquidity criterion are not as extreme as the level of debt where it shows only 17 percent of the companies listed under the KLSESI are highly liquid. The results also indicate that if both criteria are compared concurrently, only 198 out of 565 companies listed under the KLSESI conform to the criteria set up by the DJIM.
Research limitations/implications
The main reasons why the differences exist among Islamic Indices are due to micro‐factor as faced by Malaysian companies such as the limited amount of capital resources. The Shari'ah supervisory board of the respective indices represents the sole body that determines the rules or criteria to be used by each index. This explains why the indices differ from one country to another and efforts should be done by regulators in the respective countries to harmonize the differing criteria used.
Originality/value
The paper represents the first study that compares the criteria used by two different indices regarding Islamic capital investment in a developing country.
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This study aims to test mutual fund superiority, comparing the performance of 646 Islamic mutual funds with 475 ethical funds and conventional proxies.
Abstract
Purpose
This study aims to test mutual fund superiority, comparing the performance of 646 Islamic mutual funds with 475 ethical funds and conventional proxies.
Design/methodology/approach
This study uses statistical methods including paired t-statistics of independent samples, one-way Bonferroni test–analysis of variance–F-statistic for testing means equality, the chi-squared test for median equality and regression models corrected for heteroscedasticity. These methods are used to identify superiority of mutual funds and to validate the significance of the results.
Findings
The findings confirm the superiority of conventional funds over ethical funds and ethical funds over Islamic funds. Both ethical and Islamic funds, however, outperform conventional proxies during some recessionary periods. Moreover, stronger performance is recorded for Islamic funds in Europe and North America regions and across age and asset allocation categories, but limited support for reversal fund size, composition focus and reversed price effect.
Research limitations/implications
These findings should assist investors when deciding to invest and motivate Islamic and ethical funds to improve their portfolio formation and asset allocation strategies set by their professional managers.
Originality/value
The originality of this study is in its comprehensive approach in that it compares the performance of funds after accounting for such characteristics as fund objectives, size, age, asset allocation, geographical investment focus, fund composition focus, share price levels and the effect of global crises. This study approach is not only original and productive in documenting Islamic funds’ performance for the past three decades (1990–2022) but can also update the literature on these characteristics collectively and individually.
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Syed Alamdar Ali Shah, Raditya Sukmana and Bayu Arie Fianto
This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.
Abstract
Purpose
This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.
Design/methodology/approach
A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.
Findings
This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.
Originality/value
The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.
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