Efficiency and price clustering in Islamic stocks: evidence from three Asian countries

Abstract

Purpose This paper aims to examine the extent of price clustering in a selection of Islamic stocks listed in Indonesia, Malaysia and Pakistan and also investigates the determinants of the phenomenon at the firm level. Design/methodology/approach The author test the uniformity of price distribution in the selected securities. Then, the determinants of price clustering were investigated through multivariate analysis based on a binary logistic regression model. Following the arguments of Narayan et al. (2011), who emphasize the importance of considering firm heterogeneity when studying the phenomenon, the author conducts the empirical study at the firm level. Findings The evidence indicates that Islamic stocks show a mild level of price clustering. Only half of the stocks under analysis rejected the uniformity test in the distribution of prices. In these cases, investors exhibited a preference for prices ending at zero and five. The evidence does not confirm the cultural clustering theories. Price clustering is found to be positively associated with price level and relative bid-ask spread. Overall, the negotiation hypothesis, which predicts that investors prefer round prices to minimize the costs associated with negotiations, best explains most of our results. Research limitations/implications The existence of price clustering is difficult to reconcile with the prediction of the efficient market hypothesis that prices should follow a random walk. Moreover, the evidence indicates that Muslim investors share a preference for round prices in some settings, under the assumption that Islamic stocks are mostly traded by Muslim investors. Originality/value To the author’s best knowledge, this is the first study to address the subject of price clustering in Islamic stocks.

Sharia stock investment decisions: Sharia stock literacy and risk factors and their relations with behavioral bias

“…Relying on knowledge alone, without being followed by action, will not change individual behavior in making wise decisions (Zulfikar, 2016). This research aligns with other studies (Budiman, 2021;Din et al, 2021;Fatihudin, 2017;Humaira, 2021;Koesoemasari et al, 2022;Lobão, 2023;Roemanasari & Sabela, 2022), which indicate that Sharia stock literacy influences behavioral bias.…”

“…Those who are risk averse typically opt to invest in deposits, while those who are risk takers typically favor foreign currency, capital, and portfolios. Research by Budiman (2021), Din et al (2021), Fatihudin (2017), Humaira (2021), Koesoemasari et al (2022), Lobão (2023), and Roemanasari and Sabela (2022) indicate that risk factors have a significant role in shaping decisions related to Sharia stock investments. The following hypothesis in this research is derived from the description and outcomes of earlier studies:…”

“…Investors consistently believe that past performance in the stock market will translate into future success. According to studies (Budiman, 2021;Din et al, 2021;Fatihudin, 2017;Humaira, 2021;Koesoemasari et al, 2022;Lobão, 2023;Roemanasari & Sabela, 2022), behavioral bias influences Sharia stock investment decisions. From the description and results of previous research, this research's hypothesis is proposed as follows:…”

“…Likewise, with representativeness behavior, it was found that financial literacy influenced this behavior (Ateş et al, 2016). Sharia stock literacy influences behavioral bias, according to studies (Budiman, 2021;Din et al, 2021;Fatihudin, 2017;Humaira, 2021;Koesoemasari et al, 2022;Lobão, 2023;Roemanasari & Sabela, 2022) show that Sharia stock literacy influences behavioral bias. Drawing from the preexisting literature and its findings, the present study aims to test the following hypothesis: H2: Sharia stock literacy is positively related to behavioral bias.…”

“…Investor behavioral biases are divided into two categories: cognitive bias, which is wrong reasoning, and emotional bias, which is investors' impulses or intuition. In order to reduce the impact of behavioral bias, investors must possess a strong understanding of financial matters (Din et al, 2021;Humaira, 2021;Koesoemasari, Haryono, Trinugroho, & Setiawan, 2022;Lobão, 2023;Roemanasari & Sabela, 2022).…”