Vasileios Pappas

Financial Markets Synchronization and Contagion: Evidence from CEE and Eurozone

We examine the synchronization of European Union (EU) financial markets before and during the recent financial crisis. A DCC-GARCH framework captures dynamic correlations and a Markov-Switching framework captures regime changes. For the 27 nations of the EU, we formulate characteristics of the crisis: transition dates, duration and intensity. As compared to established members of the EU, recent entrants to the EU entered the crisis at later dates and were less adversely affected. Consistent with the literature on financial contagion, we identify a significant strengthening of correlations between stock markets, particularly for recent entrants. Higher levels of sovereign debt and lower industrialization are associated with the intensity of the crisis experienced. In finding evidence of a core-against-periphery EU, our results refute the notion of uniform integration of EU financial markets.

Do Islamic Banks 'Live Free and Die Harder'?

Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for both bank types, we find that Islamic banks have a significantly lower risk of failure than that of their conventional peers. This lower risk is based both unconditionally and conditionally on bank-specific (microeconomic) variables as well as macroeconomic and market structure variables. Our findings indicate that the design and implementation of early warning systems for bank failure should recognize the distinct risk profiles of the two bank types.

A high-frequency analysis of price resolution and pricing barriers in equities on the adoption of a new currency

ABSTRACT We use ultra high frequency (trade by trade) data to demonstrate that equity price clustering and pricing predictability around psychologically important prices in Greece switches away from drachma-focused with the introduction of the euro, but does not immediately switch to euro-clustering. The change in trader price focus around the euro introduction addresses an open debate in the clustering literature on whether the presence of clustering is a bias related to the current prices or anchoring to past prices. Our findings of a decline in drachma clustering, but lack of switch to euro effects supports the case for clustering being a trading feature that is slow to transfer to new pricing regimes. A key advantage of the ultra high frequency dataset is we are also able to demonstrate the presence of psychological pricing barriers related to each currency that are not detectable in daily data.

Another Great Convergence? Are Islamic and Conventional Banks Converging in Efficiency across All Countries?

This paper examines how efficiency dynamics of Islamic and conventional banks compare and how they are converging across different countries. We employ both parametric and non-parametric methods to analyse a panel of Islamic and conventional banks from 23 countries during the period 1999 to 2014. Parametric methods (stochastic frontiers methods) shows that both steady state efficiency and the speed of convergence of Islamic and conventional banks are similar. A non-parametric framework (classification trees) identifies a varying degree of alignment between the Islamic and conventional banking model across countries, which could explain the plurality in conclusions in the Islamic/conventional bank efficiency debate. We find that the alignment between the two bank types is positively related to the country’s financial depth, transparency, economic stability and banking concentration. At the bank level, the alignment in the two banking systems is associated with higher income diversification, liquidity, profitability and financial stability.

Efficiency in Islamic and Conventional Banks: Evidence from the Gulf Cooperation Council Countries

We examine efficiency in Islamic and conventional banking systems in the Gulf Cooperation Council (GCC) region (2004-2007) using financial ratio analysis (FRA) and data envelopment analysis (DEA). We find the two approaches are complementary in terms of the information they provide. From the FRA, the Islamic banking system is less cost efficient but more revenue and profit efficient than the conventional one. Bootstrapped tests confirm that these differences are significant. From the DEA, average efficiency is significantly lower in Islamic than conventional banks. A decomposition of the DEA efficiencies demonstrates that the efficiency difference is more a consequence operating under Islamic rules (i.e. the banking system itself) rather than of managerial inadequacies. Productivity growth has been slight, and can be attributed to the sluggish adaptation of inefficient banks to technological advancements.