Hachmi Ben Ameur

Does Islamic banking performance vary across regions? A new puzzle

ABSTRACT This article investigates the performance of Islamic banks (IBs) across four different regions (Egypt, the Gulf, the UK and the US) in the aftermath of the subprime crisis. Using daily data and two performance ratio proxies (ROA (Return on Asset) and Tobin Q), we show that the performance of IBs varies significantly from one region to another, with the highest level for regions in the West. This result suggests a new puzzle as application of the same Sharia Board rules and sales of similar products should normally provide comparable performance outcomes for IBs.

Do the US trends drive the UK–French market linkages?: empirical evidence from a threshold intraday analysis

This article investigates the impact of US stock market openings on linkages between the UK and French markets. Using intraday data over the period December 2004 to March 2009, we find significant time-varying dependence between the UK and French stock returns, which alter according to the state of the US market. Indeed, not only does the opening of the US market itself significantly affect the UK stock dependency, but such linkages also seem to be closely dependent on bearish or bullish US market trends. Interestingly, the estimation of a two-regime Threshold Autoregressive (TAR) model indicates that the bearish US trends are a source of minor linkage (lower regime), whereas the bullish US trends involve higher interdependency (upper regime). This finding is particularly interesting as following the US trend expectations enables us to better forecast future European stock prices and to calculate the level of their potential contagion effects.

Measuring time-varying equity risk premium in the context of financial crisis: do developed and emerging markets differ?

Equity risk premium (RP) constitutes an interesting area of study in modern finance, as it is useful in assessing investor behaviour and risk aversion, estimating fundamental value and selecting optimal investment and portfolio options. Ex-ante RP is a key input factor in well-known financial models such as the Capital Asset Pricing Model (CAPM). It thus plays a crucial role in wealth allocation decisions about different financial assets and in evaluating the risk level. The specification of RP dynamics is therefore a major issue for financial economists, investors and traders. Interestingly, the highest stock market losses after the recent 2008/09 crisis involved considerable transaction trading declines, and might suggest significant changes to RP. Its measurement is therefore essential to improve investors’ decisions and to forecast future equity market dynamics during crisis periods. However, its estimation does not follow a unanimously agreed method as it depends on the sample period and the methodology used. Equity premium estimation has been the subject of several prior studies in the literature (Siegel and Thaler, 1997; Pastor and Stambaugh, 2001; Abou and Prat, 2010). In general, the authors highlight time-variation in RP dynamics, but such studies have not unanimously specified its determinants and factors. The divergence can be explained by the fact that the estimation of RP is not based entirely on observed values, but under conditions of uncertainty, expectation hypotheses and with respect to the risk-free rate. Accordingly, different methods have been implemented to estimate RP. Abou and Prat (2010) identified two important measurement methods for ex-ante RP: the Backward Approach and the Forward Approach. Whereas the former requires expectation assumptions and expresses the expected return according to the historic values of returns or other variables (dividends, earnings, interest rate, wealth, etc.), the Forward Approach relies on stock price forecast survey data and does not require any expectation hypotheses. Focusing uniquely on the few studies that showed the time-variation character in RP, we noted several explanations for time-variation in RP. First, ex-ante RP may vary as it requires forecasts made by market investors who can continuously revise them over time in line with business cycles. Indeed, microeconomic

Measurement errors in stock markets

This paper points to further measurement errors in stock markets. In particular, we show that the application of usual performance ratios to evaluate financial assets can lead to inappropriate findings and consequently wrong conclusions. To this end, we analyze standard performance ratios as well as extreme loss-based financial ratios and compare the conclusions with those provided by systemic risk measures. The application of these different measures to both conventional and Islamic stock indexes for developed and emerging countries in the context of the financial crisis yields two interesting results. First, the analysis of financial performance exhibits further measurement errors. Second, the consideration of extreme loss and systemic risk in computing performance measures increases the reliability of performance analysis.