Impact of Foreign Exchange Exposure and Syariah-Compliant Status on Firms' Decision to Practice Hedging

Wahab, Adilah A.; Abdul-Rahim, Ruzita; Janor, Hawati

doi:10.2139/ssrn.3232587

Cited by 1 publication

(2 citation statements)

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“…The process was repeated dependent on the number of maximum integer J such that 2 J is less than the total observations. As the exchange risk measurement provides meaningful interpretation for the monthly time horizon, the study chose a maximum scale of J = 5 (32-64 days) as recommended by Masih et al [11]. To sum it up, orthogonal wavelet series approximation for a given seriesR t is defined as the summation of father wavelet coefficients (s J,k ) and mother wavelet coefficients (d j,k ) as follows:…”

Section: Methodsmentioning

confidence: 99%

“…Screening of Shariah compliance is ruled by the Syariah Advisory Council (SAC) under the auspices of the Securities Commission of Malaysia (SC). Shariah compliant firms need to consistently maintain the Shariah compliance standard in every aspect of their business operations because the SAC will regularly review the Shariah compliance status every year [11]. Certification of Shariah compliance can be further segregated into two categories which are business activities and financial position.…”

Section: Datamentioning

confidence: 99%

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Investigating the Influence of Shariah Compliance on the Level of Currency Exposure Across Time Scales: An Application of Wavelet Approach

Abdul Wahab

2021

MATEMATIKA

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Currency exposure is defined as the risk where firm value is sensitive to changes in foreign exchange movement. Several studies have been devoted to measure the extent of foreign exchange exposure of Malaysian corporations. However, previous efforts have ignored the potential of Shariah compliance and time scale effects on the measurement. Motivated from these specification problems, the study investigated the influence of Shariah compliance on the level of multi-scale exchange rate exposure using the Maximal Overlap Discrete Wavelet Transformation (MODWT) approach. The study focused on a sample of 12 Shariah compliant firms (SCF) and 12 non-Shariah compliant firms (NSCF) listed under the Food and Beverage industry in Malaysia from July 2005 till August 2018. As a result, the study found that the level of Shariah compliance had a negligible impact on the level of exchange exposure. The study also found that the level of currency exposure increased from low to high time scale, indicating that widened investment intervals entail greater exchange risk for both SCF and NSCF. In terms of policy implication, the study infers that the SCF and NSCF share almost identical exchange risk profiles which uphold the law of one price. In fact, there is no basis to expect different risk management routines in dealing with exchange risk between the two groups. However, the study stresses the importance of incorporating the time scale factor in managing exchange risk for both groups.

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Section: Methodsmentioning

confidence: 99%

Section: Datamentioning

confidence: 99%