M. Shabri Abd. Majid

Impact of the 2007 US financial crisis on the emerging equity markets

Purpose – The purpose of this paper is to explore empirically the effects of the current financial crisis on the integration and co‐movements of selected stock markets of the emerging economies, namely Indonesia and Malaysia.Design/methodology/approach – The paper employs the standard time series technique and vector autoregressive framework.Findings – The results of this paper support the general view that stock markets tend to show greater degree of integration or increased co‐movements during the crisis period, resulting in lesser benefit of diversification that can be gained by investors participating in these markets.Research limitations/implications – This paper only focuses on emerging equity markets of Malaysia and Indonesia.Practical implications – This paper reveals that unlike during the pre‐crisis period, the long‐run diversification benefits that can be earned by investors across the emerging equity markets of Indonesia and Malaysia during the crisis period tend to diminish.Originality/value ...

Dynamic linkages among ASEAN‐5 emerging stock markets

Purpose – The purpose of this paper is to empirically explore market integration among five selected Association of Southeast Asian Nations (ASEAN) emerging markets (Malaysia, Thailand, Indonesia, the Philippines and Singapore) during the pre‐ and post‐1997 financial crisis periods.Design/methodology/approach – Employs two‐step estimation, cointegration and generalized method of moments (GMM).Findings – The study finds that the stock markets in the ASEAN region are cointegrated both during the pre‐ and post‐1997 financial crisis. However, the markets are moving towards a greater integration, particularly during the post‐1997 financial crisis. Finally, as measured by the error correction terms, except the emerging market of Indonesia, all other ASEAN markets appear to be the important bearers of short‐run adjustment to a shock in the long‐run equilibrium relationships in the region both during the pre‐ and post‐crisis periods.Research limitations/implications – The study only focuses on stock markets of th...

Long-run relationship between Islamic stock returns and macroeconomic variables: An application of the autoregressive distributed lag model

Purpose - The purpose of this paper is to explore the extent to which macroeconomic variables affect the Islamic stock market behavior in Malaysia in the post 1997 financial crisis period. Design/methodology/approach - The paper employs the latest estimation technique of autoregressive distributed lag (ARDL) model approach to cointegration. Findings - The results suggest that real effective exchange rate, money supply M3, treasury bill rate (TBR) and federal fund rate (FFR) seem to be suitable targets for the government to focus on, in order to stabilize the Islamic stock market and to encourage more capital flows into the market. As for the interest rates and stock returns relationship, the paper finds that when interest rates rise either domestically (TBR) or internationally (FFR), the Muslim investors will buy more Research limitations/implications - The results of this study are limited to the post 1997 financial crisis period until the beginning of the year 2006 for a small open economy, Malaysia. Practical implications - The paper reveals that both changes in the local monetary policy variables and in the US monetary policy as measured by the changes in the FFR have a significant direct impact on the Islamic stock market behavior in Malaysia. Originality/value - The paper adopts the latest time series econometrics technique to test for cointegration, ARDL. And it is among the earliest attempts to investigate the long-run effects of the macroeconomic variables changes either domestically or internationally on the Islamic stock market.

A comparative analysis of the performance of conventional and Islamic unit trust companies in Malaysia

Purpose - The purpose of this paper is to investigate the efficiency of selected conventional and Islamic unit trust companies in Malaysia during the period 2002 to 2005. Design/methodology/approach - The paper adopts Data Envelopment Analysis (DEA) to investigate efficiency, as measured by the Malmquist index, which is decomposed into two components: efficiency change and technical change indexes. Findings - The study indicates that technical efficiency is the main contributor to enhancing the efficiency of the Malaysian unit trust industry. In addition, the larger the size of the unit trust companies, the more inefficient the performance. In comparing the efficiency of unit trust companies, the study finds that some of the Islamic unit trust companies perform better than their conventional counterparts. Research limitations/implications - The study is limited to five Islamic unit trust companies. Thus, the findings of this study are indicative, but inconclusive for the unit trust industry as a whole. Practical implications - The results have two important implications for both conventional and Islamic unit trust companies in Malaysia. First, the deterioration of total factor productivity (TFP) in the unit trust industry in Malaysia is due to the deficiency of innovation in technical components. Second, the size of the unit trust companies has an adverse effect on the TFP performance. Originality/value - The contribution of this study is that it analyzes the efficiency of the two types of unit trust industry which are important and relevant for Malaysia. This significance arises from the dual financial system, in which the Islamic unit trust companies operate in parallel with their conventional counterparts. The comparison sheds some light on the performance of the Islamic unit trust companies, whose operations are based on profit-sharing, in contrast to the conventional unit trust companies.

Does trade matter for stock market integration

Purpose - The purpose of this paper is to re-examine the stock market integration and short-run dynamic interactions between the Malaysian stock market and the stock markets of its major trading partners (the USA, Japan, Singapore, China and Thailand). Design/methodology/approach - Weekly stock indices spanning from January 1992 to May 2008 is analysed using autoregressive distributed lag (ARDL) bound testing approach and vector autoregression (VAR) framework. Findings - Stock markets of Malaysia and its major trading partners are found to be integrated. To some extent, it is found that trade does matter for stock market integration. Additional, geographical proximity and close relationship between the countries further contributes towards a greater integration between them. To move forward to a greater financial integration among these countries, trade liberalisation, including reduction or removal of trade and investment barriers would be necessary. Originality/value - This paper is among the first attempts to use ARDL and VAR frameworks to examine integration among the stock markets of Malaysia and its major trading partners. The findings of the study would shed some empirical lights for the purpose of policy making.

Determining the viability of rental price to benchmark Islamic home financing products: Evidence from Malaysia

Purpose – The purpose of this paper is to analyze the possibility of relying on the rental rate to price Islamic home financing product.Design/methodology/approach – By comparing two models consisting of either rental rate or lending rate (LR) and selected macroeconomic variables that could influence property value, the study focuses on the Malaysian data covering the period from 1990 to 2006. The study adopts several econometric time‐series analysis, such as the autoregressive distributed lag estimates, bi‐variate Granger causality, and multivariate causality based on the vector error‐correction model.Findings – The study finds consistent evidence that the rental price (RP) is a better alternative than the LR to price Islamic home financing product. In particular, the rental rate is found to be resilient to short‐term economic volatility, while in the long run, it is truly reflective of the economic fundamentals.Practical implications – This feature of the RP renders it as a fair pricing mechanism for th...

International Linkages among Stock Markets of Malaysia and Its Major Trading Partners

This study empirically examines the short- and long-run dynamic causal linkages between Malaysia and its major trading partners (the United States, Japan, Singapore, China, and Thailand) based on a two-step estimation, Autoregressive distributed lag (ARDL) and Generalized Method of Moments (GMM) during the period 1992–2008. The study documents that the stronger the trade ties among the countries, the higher the degree of comovements among their stock markets. The Japanese stock market, to some extent, is found to be more important than the United States over these markets. In designing stock market policies, each country should take into consideration of any shocks in its major trading partners.

Towards an Islamic international financial hub: the role of Islamic capital market in Malaysia

Purpose - In line with the governments policy to promote Malaysia as an international hub for Islamic banking and finance, the purpose of this paper is to evaluate the dynamic effects of both Islamic and conventional stock markets on foreign portfolio investments. Design/methodology/approach - First, the paper explores the short and long-run relationships between (FPI) and three markets, i.e. the goods, money, and securities market. Second, the paper attempts to examine the relative importance of the three markets in accounting for variations in FPI. Consistent with earlier studies, the goods market variable considered is real income (Y). The money market variables tested are the broad money supply (M2), treasury bill rate (TBR) and the US Federal Fund rate (FFR), while the security market is represented by both Kuala Lumpur Findings - The findings of the study indicate that among the three markets studied, the securities market in Malaysia (both conventional and Islamic) is the most significant market in attracting FPI into the economy. This implies that to a certain extent, the governments effort in promoting Malaysia as the international hub for the Islamic capital market has been successful. Originality/value - The paper suggests that further efforts need to be enhanced in promoting Malaysia as the International hub for the Islamic banking and finance. The papers findings shed some light on the policy ramifications pertaining to attracting foreign investors into the ICM in Malaysia and in moving towards a more globally competitive capital market.

Assessing the contribution of Islamic finance to economic growth: Empirical evidence from Malaysia

Purpose – This purpose of this paper is to empirically examine the contribution of the Islamic banking and financial institutions (IBFIs) to economic growth in Malaysia. Design/methodology/approach – Focusing on the post-1997 economic turmoil, the paper relies on several time series tests, such as autoregressive distributed lag (ARDL), vector error correction model (VECM) and variance decompositions (VDCs). Findings – The paper documents significant role played by the IBFIs in Malaysian economy. In particular, significant unidirectional causality was found from the IBFIs development to economic growth, supporting the finance-growth led hypothesis or the supply-leading view. Research limitations/implications – The paper only focuses its analysis on the role of the IBFIs in the Malaysian economy and not the financial sector as a whole. Thus, the findings of this paper are indicative, but inconclusive for the entire financial sector in the country. Practical implications – Continuous efforts should be undert...

The role of goods, money and securities markets in promoting family takaful in Malaysia

In line with the governments policy to promote Malaysia as an international hub for Islamic banking and finance, the dynamic effects of goods, money and securities markets on the development of family takaful (Islamic life insurance) in the country during the period from 1999 : Q1 to 2006 : Q4 are empirically examined. Specifically, it seeks to explore the short- and long-run dynamics and the causalities between takaful performance and the goods market, money market, and securities market. The findings indicate that, the goods market is the most significant market in promoting family takaful in Malaysia. This implies that, the governments effort has been successful, thus far.