Analyzes dynamic linkages between stock prices and four macroeconomic variables for the case of Malaysia using standard and well-accepted methods of cointegration and vector autoregression. Empirical results suggest the presence of a long-run relationship between these variables and the stock prices and substantial short-run interactions among them. In particular, documents positive short-run and long-run relationships between the stock prices and two macroeconomic variables. The exchange rate, however, is negatively associated with the stock prices. For the money supply, documents immediate positive liquidity effects and negative long-run effects of money supply expansion on the stock prices. Also notes the predictive role of the stock prices for the macroeconomic variables. However, there seems to be irregularity in the data when observations from the recent crisis are included. Finally, documents the disappearance of the immediate positive liquidity effects of the money supply shocks and unstable interactions between the stock prices and the exchange rate over time.

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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 the five founding members of ASEAN, i.e. Malaysia, Indonesia, Thailand, Singapore and the Philippines. Practical implications -The paper reveals that unlike during the pre-crisis period, the long-run diversification benefits that can be earned by investors across the ASEAN markets in the post-crisis period tend to diminish. Originality/value -The study is among the first to use two-step estimation, cointegration and GMM to re-examine market integration either in the emerging or developed markets.

This paper aims to determine the optimal contract for the principal and the agentin imperfect market, when murabahah and ijarah are used. The financial contractingenforceability approach is employed to determine the contract that maximizes thevalue of the firm subject to agents’ constraints when the shock is low and high, andregarding market frictions. Furthermore, this approach allows us to assess the level ofmarket frictions that agents may bear in case of low shock and high shocks. Findingsreveal that the simulated values of the market frictions’ parameters for both contractsincrease when moving from the low shock to the high shock. Such evidence impliesthat the agent is more likely to cheat and hide significant information about the projectwhen the shock is high. As a response to this higher risk, the simulated values of theprofit margin parameters for the principal rise also when the shock is high in orderto compensate for the increase of market frictions and mitigate conflicts of interest.By comparing both contracts based on the simulated optimal values of the firm, it isnoticeable that the gap between both contracts is very tight, which can be attributedto their common debt-based financial arrangements. However, the results show thatijarah allows the principal and the agent to generate the highest value in case of lowshock and high shock, comparing to murabahah. Therefore, ijarah seems to be moreattractive for the principal and the agent than murabahah.

This paper discusses the financial contracting theory from the conventional and Islamic perspectives. It provides an overview of the contributions in this field and discusses the gaps in the literature. In addition, it proposes two relevant approaches namely the financial contracting enforceability approach and the adverse selection analysis in order to deal with conflicts of interest among economic agents. The first approach is meant to assess the contract that maximizes the value of the firm subject to the enforcement constraint for the agent and the participation constraint for the principal. The second approach considers an adverse selection framework in order to determine the principal’s subjective perception of the risk of default when equity and debt financings are used. Similarly, it suggests avenues for future research. Firstly, it calls for a deeper understanding of venture capital as a potential model of mushārakah. Secondly, it puts stress on the importance of examining crowd-funding functioning from the principal-agent point of view. Thirdly, it sheds some light on the necessity to yield financial explanation about the excessive use of murābaḥah instead of ijārah. In a nutshell, we assume that the alternative approaches can be adopted to provide relevant insights regarding the proposed future researches.