A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited

2021

JIABR

Purpose The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks. Design/methodology/approach The research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM). Findings Regressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations. Practical implications Sharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run. Originality/value Sharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.

Section: Review Of Literaturementioning

confidence: 81%

Stage-I Shariah compliant Macaulay’s duration model testing

2021

JIABR

“…Mohrschladt and Nolte (2018) extend the works of Merton (1973), Leibowitz (1986), Kadiyala and Subrahmanyam (2000), Dechow et al (2004) work of implied duration, Lettau and Wachter (2007), van Binsbergen et al (2012), Schröder and Esterer (2012) and Weber (2018) in the area of equity duration and present a new model of duration based on a new factor of estimating unexpected stock returns. However, this approach suffers from long-term instability of durations against slow movements in interest rates (Sweeney and Warga, 1986).…”

Section: Review Of the Literaturementioning

confidence: 66%

Macaulay’s theory of duration: 80-year thematic bibliometric review of the literature

2020

JES

PurposeThe purpose of this research is to propose a framework for research on Macaulay duration and establish future research directions.Design/methodology/approachThematic, bibliometric and content analyses have been used to review 168 research papers published between 1938 and 2019 taken from ISI Web of Science and Scopus contributed by leading authors, journals and regulatory bodies.FindingsIdentification and integration of themes of duration theory, duration model development and duration model implementation leading to unattended research gaps, and framework for research on Macaulay duration.Research limitations/implicationsThe study is based on an extensive review of the literature to extract important themes, research gaps and frameworks. It does not empirically investigate significance of Macaulay duration and various sectors.Practical implicationsThis research has several aspects that are helpful for practitioners. Macaulay duration has been the subject of empirical research only without any guiding framework. This research provides a platform to initiate profound researches in various areas of finance. Various proposed models are required to be tested under holistic approach in conventional and emerging fields, especially in Islamic settings.Originality/valueThis research highlights, research themes leading to framework, research gaps and factors that are crucial in developing, extending and testing duration models leading to enhancement of theoretical base of Macaulay duration.

“…17. Equity Duration & Book Value Duration Mohrschladt and Nolte (2018) extend the works of Merton (1973), Sweeney and Warga (1986), Dechow et al (2004), Lettau andWachter (2007), van Binsbergen et al (2012), Schröder and Esterer (2012), Weber (2018) Leibowitz (1986) and Kadiyala and Subrahmanyam (2000) to propose these models.…”

Section: Duration Of An Organizationmentioning

confidence: 93%

Shariah Compliant Macaulay’s Duration Model Testing: Evidence from Islamic banks in Indonesia

2021

JISEL

The purpose of this research is to test Shariah compliant duration models on Islamic banks in Indonesia. This will be achieved using data of earning assets and risk bearing liabilities of Indonesian Islamic banks from 2009 to 2019. Using multiple regressions the results suggest that Shariah compliant duration models are robust to calculate duration of earning assets, return bearing liabilities and Islamic banks. This research adds to the previous research of testing Shariah compliant duration model. Ultimately, it will improve profitability, risk efficiency and Shariah efficiency by improved Shariah compliant measures of risk management. This will ultimately improve market capitalization and returns stability in the long run. A major limitation of the study is very short length of data of Islamic banks. Still another limitation is difference in commencement of business of various Islamic banks that makes length of data unequal.