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Open Access
Article
Publication date: 7 December 2021

Munazza Jabeen and Saba Kausar

This paper aims to examine the performance of Islamic and conventional stocks listed at the Pakistan Stock Exchange by using both parametric and non-parametric approaches…

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Abstract

Purpose

This paper aims to examine the performance of Islamic and conventional stocks listed at the Pakistan Stock Exchange by using both parametric and non-parametric approaches. The motivation is to do risk-return analysis of Islamic stock prices and conventional stock prices.

Design/methodology/approach

It uses various measures of performance, e.g. Sharpe ratio, Treynor ratio, Jensen's alpha, beta, generalized auto-regressive conditional heteroskedasticity and stochastic dominance. Using the Karachi Meezan Index-30 (KMI-30) and the Karachi Stock Exchange Index-30 (KSE-30) as proxies for Islamic and conventional stock prices, respectively, it examines the performance of Islamic and conventional stocks. The daily data of KMI-30 and KSE-30, covering period from June 9, 2009 to June 20, 2020 are used.

Findings

The results show that the overall KMI-30 outperforms the KSE-30. The returns of the KMI-30 are greater than the KSE-30. However, the risk and volatility of the KMI-30 and KSE-30 are similar. Further, the KMI-30 has higher excess returns per unit of total risk than the KSE-30. But both indexes have similar excess returns per unit of systematic risk. Moreover, the KMI-30 returns have stochastically dominance over the KSE-30 returns. These results reveal that the Islamic index performs better than the conventional index.

Practical implications

The findings provide several practical implications in financial and investment decisions making by investors, managers and policymakers such as strategies for asset allocation and investment. Further, in risk management, it provides guidance for allocating portfolios and managing risk. The investment in Islamic stocks may mitigate potential risk within asset portfolios.

Originality/value

This research is unique in its approach to the analysis of the performance comparison of conventional and Islamic stock by using comprehensive parametric and non-parametric estimation techniques. Such research has not been undertaken in the Pakistan's equity market since.

Details

ISRA International Journal of Islamic Finance, vol. 14 no. 1
Type: Research Article
ISSN: 0128-1976

Keywords

Article
Publication date: 10 September 2020

Faheem Aslam, Khurrum S. Mughal, Ashiq Ali and Yasir Tariq Mohmand

The purpose of this study is to develop a precise Islamic securities index forecasting model using artificial neural networks (ANNs).

Abstract

Purpose

The purpose of this study is to develop a precise Islamic securities index forecasting model using artificial neural networks (ANNs).

Design/methodology/approach

The data of daily closing prices of KMI-30 index span from Aug-2009 to Oct-2019. The data of 2,520 observations are divided into training and test data sets by using the 80:20 ratio, which corresponds to 2016 and 504 observations, respectively. In total, 25 features are used; however, in model selection step, based on maximum accuracy, top ten indicators are selected from several iterations of predictive models.

Findings

The results of feature selection show that top five influencing indicators on Islamic index include Bollinger Bands, Williams Accumulation Distribution, Aroon Oscillator, Directional Movement and Forecast Oscillator while Mesa Sine Wave is the least important. The findings show that the model captures much of the trend and some of the undulations of the original series.

Practical implications

The findings of this study may have important implications for investment and risk management by using index-based products.

Originality/value

Numerous studies proved that traditional econometric techniques face significant challenges in out-of-sample predictability due to model uncertainty and parameter instability. Recent studies show an upsurge of interest in machine learning algorithms to improve the prediction accuracy.

Details

Journal of Economic and Administrative Sciences, vol. 37 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 6 May 2022

Niaz Ahmed Bhutto, Shabeer Khan, Uzair Abdullah Khan and Anjlee Matlani

The purpose of this study is to investigate the impact of COVID-19 on conventional and Islamic stocks by using the data spanning from February 25, 2020, to February 3…

Abstract

Purpose

The purpose of this study is to investigate the impact of COVID-19 on conventional and Islamic stocks by using the data spanning from February 25, 2020, to February 3, 2021, and employing a panel regression approach.

Design/methodology/approach

In this study a panel regression approach has been used.

Findings

The study finds a negative association between COVID-19 and stock (both Islamic and conventional). After splitting the data into 1st and 2nd waves, the relationship between COVID-19 and stock (both Islamic and conventional) remains the same (negative) in the case of the 1st wave. In contrast, in the case of the 2nd wave, the relationship turned out to be positive. During both waves of the pandemic, the magnitude of the effect is found to be higher for conventional stocks. Additionally, the study also analyzes the aggregate influence of COVID-19 on different sectors and finds that commercial banks, oil and gas exploration and marketing companies are the most influenced sectors. At the same time, automobiles and pharma are the least affected sectors.

Practical implications

The study suggests that markets start gaining momentum to reach their prepandemic level after absorbing the initial shock (emergence of a pandemic). The study also provides thorough insights for market regulators and policymakers by implying the dynamic relations between markets (conventional and Islamic) and financial crisis, which would allow them more effective control of crisis in future endeavors.

Originality/value

This is one of the first studies to investigate the impact of COVID-19 on both conventional and Islamic stocks, especially in the context of Pakistan.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 1 June 2015

Syed Anees Haider Zaidi, Ijaz Hussain Shah, Rana Umair Ashraf, Shahid Mohammad Khan Ghauri and Ibne Hassan

The purpose of this paper is to bring the attention of Muslim world toward uniformity of Shariah principles. The paper also presents different opinions of experts toward…

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Abstract

Purpose

The purpose of this paper is to bring the attention of Muslim world toward uniformity of Shariah principles. The paper also presents different opinions of experts toward standardization. Selection criteria of four different Islamic market indices are compared. Some points like Halal business and debt ratio are common, while others are different.

Design/methodology/approach

The qualitative research method has been used in this research work and various types of documents and research articles were analyzed. The authors analyzed the data of four Islamic stock markets in the world. First, they write all the screening criteria of every Islamic stock market for selecting a company for their stock market. Afterwards, they make a table that presents the comparison of screening criteria of all Islamic market indices.

Findings

A Shariah Board of Islamic Market approves any company as being Islamic Shariah-compliant based on certain criteria. Different Islamic market indices use their own criteria for selecting the company. Every Islamic market index has its own rules and regulations of the Shariah Board. Sometimes these rules are contradictory with each other; for example, if KMI-30 Islamic index is not selecting one particular company due to higher debt ratio but Dow Jones Islamic market index selects that company because that company meets the criteria of the Dow Jones Islamic market index.

Research limitations/implications

The main limitation is that there is no approach to regulators of the different Islamic market indices around the globe.

Practical implications

If Islamic indices work on the suggestions provided in this paper, standardized criteria will be available to all indices and, consequently, confidence of the investors and operational issues will be resolved. Investment will be increased.

Social implications

The belief of non-Muslims will be strong that Islamic laws are the same any where. A shift from conventional finance to Islamic Finance will be sped up.

Originality/value

This research work is original and first attempt on the topic of standardization of screening criteria of Islamic stock markets around the globe.

Details

International Journal of Commerce and Management, vol. 25 no. 2
Type: Research Article
ISSN: 1056-9219

Keywords

Article
Publication date: 14 October 2019

Muhammad Hanif, Abdullah Iqbal and Zulfiqar Shah

This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio…

Abstract

Purpose

This study aims to understand and document the impact of market-based – market returns and momentum – as well as firm-specific – size, book-to-market (B/M) ratio, price-to-earnings ratio (PER) and cash flow (CF) – factors on pricing of Shari’ah-compliant securities as explanation of variations in stock returns in an emerging market – Pakistan’s Karachi Stock Exchange.

Design/methodology/approach

Initially, the authors test Fama and French (FF) three-factor model – market risk premium, size and B/M – followed by modified FF model by including additional risk factors (PER, CF and momentum) over a 10-year period (2001-2010).

Findings

Our results support superiority of FF three-factor model over single-factor capital asset pricing model. However, addition of further risk factors – including PER, CF and momentum – improves explanatory power of the model, as well as refines the selection of risk factors. In this study, CF, B/M and momentum factors remain insignificant. Traditional B/M factor in FF model is replaced by PER.

Practical implications

Based on the modified FF model, the authors propose a stock valuation model for Shari’ah-compliant securities consisting of three factors: market returns, size and earnings, which explains 76per cent variations in cross sectional stock returns.

Originality/value

To the best of the authors’ knowledge, this is the first study (which combines market-based as well as fundamental factors) on pricing of Islamic securities and identification of risk factors in an emerging market – Karachi Stock Exchange.

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 5
Type: Research Article
ISSN: 1759-0817

Keywords

Case study
Publication date: 19 October 2020

Saqib Sharif, Sarwat Ahson and Hina Noor

This case serves as a useful backdrop for discussing a few important conceptual frameworks in the field of finance. The dilemmas are still evolving for Sharīʿah-compliant…

Abstract

Learning outcomes

This case serves as a useful backdrop for discussing a few important conceptual frameworks in the field of finance. The dilemmas are still evolving for Sharīʿah-compliant asset management company (AMC); i.e. Al Meezan, and may seem complex to the students – particularly in the Pakistan’s financial structure – but framing the discussion from a market perspective ought to help the students of finance.

Case overview/synopsis

This case study focuses on Al Meezan Investment Management Limited (Al Meezan) journey since inception. Al Meezan is a full-fledged Sharīʿah-compliant AMC and one of the major players in the mutual funds industry of Pakistan. Al Meezan offers a comprehensive range of Sharīʿah-compliant investment solutions especially designed to meet the financial goals of their existing and potential clients. The case study covers all the key events before the inception of Al Meezan, from late 1990s till March 2020. The case is based on interview with chief executive officer (CEO) (the protagonist) of Al Meezan. The case also covers various challenges faced by Mohammad Shoaib, CEO and his senior team, to make Al Meezan a vibrant institution offering Islamic financial services.

Complexity academic level

This case is aimed at undergraduate students in their final year (i.e. taking electives in the field of Finance/Islamic Finance) or graduate students majoring in Finance/Islamic Finance.

Supplementary materials

Teaching notes are available for educators only.

Subject code

CSS1: Accounting and Finance.

Article
Publication date: 1 December 2022

Rabia Asif and Sabahat Nisar

The purpose of this study is to investigate empirically the trade credit financing as antecedents to firm performance in Pakistan, a transition economy having high level…

Abstract

Purpose

The purpose of this study is to investigate empirically the trade credit financing as antecedents to firm performance in Pakistan, a transition economy having high level of openness in environment using sample data from firms following Sharia principles using Sharia compliance principles.

Design/methodology/approach

This study investigated the significance of the trade credit behavior in influencing financial performance of nonfinancial firms which have adopted Sharia principles in their business activities by incorporating feasible generalized least square estimator technique on panel data model from 2010 to 2020. The variables data was extracted from the Pakistan Securities Exchange website for the period 2010–2020. Meanwhile, this study has also taken into consideration the role of bank size in shaping the relation under consideration.

Findings

The statistical outcomes from the used model support the strong impact of the existence of trade credit in determining a firm’s financial performance. Results also highlight that profitable firms with high involvement in trade credit can boost their performance by optimal utilization of trade credit sources. However, the acquisition of bank loans for firms having no operational needs can disturb their financial health and ultimately threaten performance. This relationship is more evident for large-size firms.

Practical implications

The given analysis suggests the managers from the corporate sector that before making any arrangements for trade credit, they must have to compare the availability of the financing structure from bank as it offers a strong monetary back for any financial imbalance.

Originality/value

Briefly, to the best of the authors’ knowledge, this study would be the first to address the trade credit behavior keeping in view the sample data from firms following Islamic Shariah principles using SAC quantitative approach. Further, the proven analysis demonstrates novel contribution that efficient use of trade credit (based on Islamic Shariah principles) into business activities might strengthen corporate firms’ financial efficiency.

Details

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

Keywords

Article
Publication date: 5 July 2021

Waqas Mehmood, Rasidah Mohd-Rashid, Ahmad Hakimi Tajuddin and Hassan Mujtaba Nawaz Saleem

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Abstract

Purpose

This study aims to investigate the effect of Shariah-compliant status and Shariah regulation on initial public offering (IPO) underpricing in Pakistan.

Design/methodology/approach

Besides the ordinary least square’s method, this study used quantile least squares as a robust approach and stepwise regression for further analysis to investigate the underpricing phenomenon in Pakistan. Data of 84 IPOs listed on Pakistan Stock Exchange from January 2000 to December 2018 were collected to determine the impact of Shariah-compliant status and Shariah regulation on IPO underpricing.

Findings

Results of the study show that Shariah-compliant status has a negative relationship but Shariah regulation has a positive relationship with IPO underpricing. Hence, it is contended that Shariah-compliant firms have lower asset volatility and uncertainty than non-Shariah-compliant firms because of less information asymmetry, resulting in lower underpricing. These Shariah-compliant firms provide signals of high-quality IPOs as they must comply with the strict guidelines issued by the Securities Exchange Commission of Pakistan in addition to being considered as amicable by investors. Further, this study suggests that investors are more attracted to Shariah-compliant firms than non-Shariah-compliant ones.

Research limitations/implications

This study’s offers limited consideration of nonfinancial and financial characteristics that could influence the decision of investors to subscribe to IPOs. Besides, future studies could consider the screening benchmarks; for instance, debt and cash may explain the intensity of IPO initial return in Pakistan.

Originality/value

The present work empirically investigated the influence of Shariah-compliant status and Shariah regulation on IPO underpricing in Pakistan’s IPO market, which has been scarcely covered in the existing literature.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

Open Access
Article
Publication date: 5 August 2021

Zeyneb Hafsa Orhan and Murat Isiker

This paper aims to develop a ranking methodology for the companies included in the Islamic indices in Turkey. Thus, this paper simplifies the decision-making process for…

Abstract

Purpose

This paper aims to develop a ranking methodology for the companies included in the Islamic indices in Turkey. Thus, this paper simplifies the decision-making process for investors with Islamic sensitivities to stock market investment when constructing their investment portfolio.

Design/methodology/approach

This paper uses a case study of 20 companies listed on Borsa Istanbul, drawing data from their 2017, 2018 and 2019 financial reports. These companies are scored and ranked according to their compatibility with the screening criteria used by Ziraat Katilim index in Turkey. In addition, this paper uses the quantitative screening process to calculate the ranking scores of these companies.

Findings

The findings show that some companies are highly compatible with the screening criteria, with ranking scores close to 100 points. However, some companies satisfied the criteria on the margin. This may not be a desirable result for some investors.

Research limitations/implications

Only 20 companies are included in the analysis. Since the conventional accounting system is used in Turkey, it was difficult to get exact information about the companies’ Sharīʿah compatibility from the financial results.

Practical implications

The findings assist investors to determine which company is ethically more responsible than others within the Islamic framework. There are also implications for the companies in question, index providers and Sharīʿah scholars.

Social implications

The findings aim to simplify the decision-making process of investors who have Islamic sensitivities to stock exchange market investment when they constitute their portfolio.

Originality/value

To the best of the authors’ knowledge, it is one of the first attempts to develop a ranking methodology for Sharīʿah-screened stocks in Turkey even though Sharīʿah screening has been on the agenda since the late 1990s. This paper also compares 11 indices based on their screening criteria.

Details

ISRA International Journal of Islamic Finance, vol. 13 no. 3
Type: Research Article
ISSN: 0128-1976

Keywords

Article
Publication date: 25 April 2022

Waqar Haider Hashmi, Nazima Ellahi, Saima Ehsan and Ajmal Waheed

The purpose of this study is to highlight key issues pertaining to making use of Islamic equity indices and proposing possible solutions to address the problems faced in…

Abstract

Purpose

The purpose of this study is to highlight key issues pertaining to making use of Islamic equity indices and proposing possible solutions to address the problems faced in advancement of the concept of Shariah investing (SI) with the aim to advance the discourse on the subject.

Design/methodology/approach

Online focus group discussion (FGD) was carried out in which ten Islamic finance researchers and analysts belonging to institutions considered as authority on the subject matter participated to share their viewpoints on Islamic equity indices. Content analysis on the collected data of FGD was carried out which has revealed six key themes.

Findings

Six broader themes were identified based on the analysis of FGD, which includes criteria for constructing Islamic equity indices, utilization of Islamic equity indices for comparison with conventional stock indices, stock market efficiency perspectives, reason for integration of different equity markets, investors’ awareness of SI and future directions of Islamic equity indices. Results of the study indicate that Islamic finance researchers and analysts opined that there is a need for revising the criteria for construction of Islamic equity indices. There are conflicting viewpoints regarding performance and efficiency of Islamic indices in comparison with conventional indices and main reasons for stock market integration are trade liberalization, globalization and other factors. Moreover, there is a need for making investors and other market players aware about the attractiveness of Islamic indices from investing point of view.

Originality/value

Based on this extensive literature review and as highlighted by Masih et al. (2018) in their recap of literature on Islamic equity indices indicating that there are bulk of empirical studies carried in the past in the domain, however, there is a dearth of theoretical and qualitative studies. Hence, this preliminary qualitative study not only makes theoretical contribution but also deploys FGD, which is rarely used in the similar context, and offers candid views of the participants on key issues pertaining to Islamic equity indices. This lends novelty to this study.

Details

Journal of Islamic Accounting and Business Research, vol. 13 no. 6
Type: Research Article
ISSN: 1759-0817

Keywords

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