Mansur Masih

Testing the Conventional and Islamic Financial Market Contagion: Evidence from Wavelet Analysis

Abstract This study is a first attempt at testing the extent of contagion for conventional and Shari’ah-compliant stock indices. We examine the period surrounding the U.S. subprime crisis of 2007–9 and the Lehman Brothers collapse of 2008 to determine the relative extent of contagion. We find no clear evidence of contagion during the subprime crisis however, during the Lehman collapse most conventional indices showed contagion. Interestingly, the Shari’ah-compliant indices mostly do not show evidence of contagion. Collectively, our results have important implications for fund managers in terms of asset allocation risk and policymakers seeking an optimal policy response to crises.

Does Heterogeneity in Investment Horizons Affect Portfolio Diversification? Some Insights Using M-GARCH-DCC and Wavelet Correlation Analysis

ABSTRACT Recent literature draws attention to the issue of whether heterogeneity in investment horizons has an effect on resulting investor exposures. In this article, using Malaysia as a case study, we make the first attempt to examine comovement dynamics of Islamic equity returns to identify international portfolio diversification opportunities for investors having heterogeneous investment horizons. We use three recent and appropriate methodologies: M-GARCH-DCC, Continuous Wavelet Transforms (CWT), and Maximum Overlap Discrete Wavelet Transform (MODWT). The results significantly tend to indicate that effective portfolio diversification opportunities between our sample markets exist mainly for short holding periods while for longer investment horizons, where investor stockholding periods exceed one year, the markets appear to be mostly highly correlated yielding minimal portfolio diversification benefits. Overall, the results critically highlight the significance of heterogeneity in investment horizons and bear important implications for portfolio diversification strategies.

Issues in Islamic Equities: A Literature Survey

ABSTRACT This article reviews the current literature on Islamic equities. Our survey indicates that the bulk of articles is quantitative or empirical in nature, with a notable dearth of theoretical works. Among the common research themes explored by these articles are comparative performances of Islamic equities vis-à-vis their conventional counterparts, comparisons of Islamic portfolios with SRI funds, and empirically articulating portfolio diversification benefits associated with Islamic equities. In addition, numerous articles discuss idiosyncrasies of Shari’ah compliant stocks and portfolios under subthemes such as volatility, risk factors, and performance attributes. This survey also includes articles addressing efficiency perspectives, calendar anomalies, and issues in Shari’ah stock screening norms. We summarize general findings and offer suggestions for future research. Literature surveys on Islamic equities are few and far between, and this article, to date, represented the most recent and comprehensive attempt at that.

Re-Examining the Determinants of Islamic Bank Performance: New Evidence from Dynamic GMM, Quantile Regression, and Wavelet Coherence Approaches

ABSTRACT This study is the first attempt to conduct a comparative analysis of the internal and external determinants of the Islamic banks’ profitability in the GCC region applying dynamic GMM, quantile regression, and wavelet coherence approaches. The dynamic GMM tends to indicate that equity financing and operating efficiency and macroeconomic variables such as money supply, and inflation are significantly related to Islamic banks’ performance. The bank-specific variables such as credit risk, equity ratio, and cost-efficiency ratios are not significant at different percentiles. ROA is driven by credit risk, equity ratio, and cost-efficiency ratios (as evidenced in wavelet coherence analysis).

Religion of Islam and Microfinance: Does It Make Any Difference?

ABSTRACT This study is the initial attempt to investigate first whether microfinance institutions (MFIs) perform differently in the OIC countries where Islam is the prevailing religion and second, how Islamic microfinance institutions are different (if any) from the conventional MFIs. To accomplish these objectives, we employ a dynamic difference and system-generalized method of moments estimators. Our findings tend to indicate that there are significant differences in the way Islamic MFIs performed and operated as compared to that of the conventional MFIs in certain regions. However, in other regions, there were no significant differences in operation and performance between the Islamic MFIs and Conventional MFIs. The study presents important insights for the Islamic microfinance managers and donors as well as the policy makers.

Portfolio diversification benefits at different investment horizons during the Arab uprisings: Turkish perspectives based on MGARCH–DCC and wavelet approaches

ABSTRACT This study is an initial attempt at investigating the extent to which portfolio diversification benefits at different investment horizons are available to a Turkish investor from investment in MENA countries exposed to the Arab spring based on MGARCH-DCC and Wavelet techniques on daily data spanning from 2005 to 2015. The findings tend to suggest that the Turkish investors may not benefit from investment in Egypt for almost all investment horizons but may have moderate benefits from Lebanon up to the investment horizons of 32–64 days and longer. However, Turkish investors may benefit from Oman excepting the longer investment horizons. In the long run, all stock holding periods exceeding 32 days have minimal benefits for portfolio diversification.

Exploring portfolio diversification opportunities through venture capital financing: evidence from MGARCH-DCC, markov switching, and wavelet approaches

ABSTRACT Islamic financial institutions are being pressurized by critics to offer profit and loss sharing (PLS) financing, such as venture capital (VC) financing, for the purpose of entrepreneurial development aligned to the principle of equity risk sharing. Our study aims to link PLS investments with portfolio optimization opportunities for the Islamic asset managers. Using portfolio analysis with dynamic conditional correlation, Markov switching, and maximal overlap discrete wavelet transformation, our findings tend to indicate that there is indeed a portfolio optimization opportunity in investment universe for the fund managers who invested in PLS investments in the context of VC asset class over the long run.

Unravelling the Financial Contagion in European Stock Markets during Financial Crises: Multi-Timescale Analysis

ABSRACT The article investigates the evidence of financial contagion and market integration in selected European equity markets during nine major crises across regions. The focus is to identify whether (i) contagion evidence is pure or fundamental and (ii) dynamic evolution of integration is in the short run or long run. Wavelet decomposition in both its discrete and continuous forms is used. The findings reveal the following: (i) prior to the subprime crisis, contagion effects generated short-term shocks. The most recent US subprime crisis, however, reveals the evidence of fundamental based contagion. (ii) We find increasing short-run and long-run stock market integration, driven by several stages of the establishment of Economic and Monetary Union (EMU), questioning the ultimate benefits of formal entry into EMU membership.

Does prospectus information matter in IPO pricing

The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price.,This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model.,The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price.,This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant.,This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

The links between crude palm oil, conventional and Islamic stock markets: evidence from Malaysia based on continuous and discrete wavelet analysis

The palm oil industry is crucial to the Malaysian economy. It is also becoming more relevant and important globally and plays a key role in the expansion of Islamic Finance. Hence, this study aims to ascertain the relationship between crude palm oil prices (CPO) and the stock market (both conventional and Islamic). This study has selected Malaysia as a case study for its reliance on the palm oil industry as well as its position in Islamic Finance. Furthermore, the potential inclusion of the palm oil industry into investment portfolios also warrants the analysis of the co-movement between crude palm oil and stock market indices over varying investment horizons or time scales. Thus, to accomplish this, the Continuous Wavelet Transformation (CWT) and Maximum Overlap Discrete Wavelet Transformation (MODWT) methods were employed. The results tend to indicate that there exists little relation between CPO price returns and both the Conventional and Islamic stock market returns in the short and medium term. Interestingly enough, in the long term, significant co-movement between the variables start to emerge. This is a compelling finding as it provides new information for the investors to diversify their portfolio and time their investments. The result of this study is also a significant contribution to the pool of knowledge which lacks prominent literature on the link between palm oil, the conventional and Islamic stock markets.