Impact of the global financial crisis on Islamic and conventional stocks and bonds

Akhtar, Shumi; Jahromi, Maria

doi:10.1111/acfi.12136

Cited by 48 publications

(32 citation statements)

References 56 publications

(79 reference statements)

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“…In conclusion, previous research on the financial performance of Islamic indices is split between studies finding them to outperform during bear markets and underperform during bull markets (i.e., Al-Khazali et al, 2014, Akhtar andJahromi, 2015), while the earlier work of Hussein and Omran (2005) found the opposite and several large recent studies of multiple index providers found no significant performance difference (LOBE et al, 2012;ASHRAF, 2016). There also appears to be some evidence of a better performance in developed than in emerging markets but none of these studies controlled for backtesting bias inherent in the indices of several providers, which make historical data available for multiple years prior to the actual index launch (WALKSHÄUSL; LOBE, 2012a, 2012b).…”

Section: Empirical Evidence On Islamic Index Performancementioning

confidence: 85%

“…Previous research on the financial performance of Islamic indices displays conflicting results. Some recent studies find them to outperform during bear markets and underperform during bull markets (e.g., Al-Khazali et al, 2014;AKHTAR;JAHROMI, 2015). In contrast, the earlier work of Hussein and Omran (2005) found the opposite and several recent studies of multiple index providers observed no significant performance difference (LOBE et al, 2012;ASHRAF, 2016).…”

Section: Introductionmentioning

confidence: 96%

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Religion and Finance

Khatib

Lisboa

2019

REVISTA REUNIR

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Despite the increasing attention to ethical investments, the empirical studies on Islamic indices are scarce. The principles of Islamic indices are similar to those of other ethical indices in terms of the screening process; both of them are also characterized by their short histories. So, after Islamic indices were introduced in the late nineties, many financial markets and index providers launched their own Islamic indices for investors looking for investment opportunities without compromising their beliefs. Analysing the financial performance of Islamic equity indices from all relevant providers, we document these indices to outperform their conventional benchmarks on a global and developed market level after controlling for investment styles and a potential back-testing bias. To explain this outperformance puzzle, we investigate fundamental (i.e., risk factors), behavioural (i.e., Ramadan) and research design (i.e., sample length) related explanations but the overall results persist. When eliminating the effect of the financial services industry from conventional benchmarks, however, the outperformance of all indices except the Dow Jones Islamic Market (DJIM) world index disappears. This implies that Islamic equity indices have outperformed due to their critical position towards risk-free interest and the financial services industry. We conclude that they represent a viable alternative for risk-averse passive investors, especially during periods of high uncertainty around financial services. Further research is needed to fully understand the abnormally good performance of the DJIM.

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Section: Empirical Evidence On Islamic Index Performancementioning

confidence: 85%

Section: Introductionmentioning

confidence: 96%

Religion and Finance

Khatib

Lisboa

2019

REVISTA REUNIR

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“…This is perhaps due to Islamic stocks exclude many interest-based financial institution stocks which suffer from considerable decrease in their stock prices during the financial crises. Moreover, Islamic markets are prohibited from holding sub-prime mortgage securities and derivatives and hence Islamic stocks enjoy the benefits of risk reduction and stability during the global financial crisis (Akhtar & Jahromi 2017). Table 5 examines the impact of financial crises on the stock risk.…”

Section: Risk and Financial Crisesmentioning

confidence: 99%

“…In addition, Islamic markets are prohibited from holding sub-prime mortgage securities and derivatives. These characteristics result in Islamic stocks tend to be more stable and less risky compared to conventional stocks during market downturn and financial crises (Akhtar & Jahromi 2017;Dewandaru et al 2015). Taken together, the growing demand of Islamic equity investments, different stock characteristics and diverse business cycles motivate us to examine the link between business cycles, financial crises and the risk of Islamic and conventional stocks in the Malaysian setting.…”

Section: Introductionmentioning

confidence: 99%

Risk, Business Cycles and Financial Crises: Evidence from Islamic and Conventional Stocks

Tee¹,

Kew²

2019

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This study examines whether business cycles and financial crises affect the risk of Islamic stocks compared to conventional stocks in Malaysia for the period 1997 to 2016. The findings conclude that business cycles play a crucial role in affecting stock risk. Specifically, stock risk tends to be higher during the economic contraction than during economic expansion for Islamic, conventional and all stocks. We further test whether Asian and Global financial crises exacerbate stock risk. The results document that the level of stock risk increases during financial crises. Moreover, we find that the impact of economic contraction and financial crises on increasing stock risk remain significant after controlling for various variables known to have effect on risks. In addition, we discover that the risk of Islamic stock is lower compared to those of conventional and all stocks during the economic contraction and financial crises. This recommends the diversification advantage and investment opportunity of the Islamic stocks during the periods of financial turbulence. The findings offer important insights to investors who are considering Islamic or conventional stocks as potential investment and to policymakers in evaluating stock risk in different economic states.2 Kata kunci: Saham Islam dan konvensional; risiko saham; kitaran perniagaan; pengembangan dan pengecutan ekonomi; krisis kewangan

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“…For example, there were three changes of Prime Minister between 2010 and 2013; see Smales (2015) for more details. 9 In contrast to the capital structure literature, there are more studies conducted during the GFC period in other areas, such as audit committee ; financial risk management (Ganegoda and Evans, 2014); superannuation investment choices (Gerrans, 2012); individual financial risk tolerance (Gerrans et al, 2015); banking (Akhtar and Jahromi, 2015); corporate governance (Adams, 2012); bank risk taking behaviour (Hoang, Faff, and Haq, 2014); trade credit (Kestens, Cauwenberge, and Bauwhede, 2012), bank regulation (Levine, 2012); and accounting areas (Mala and Chand, 2012;Xu et al, 2013). Having said that, there are two recent studies slightly related to the financial crisis by examining capital structure issues through business cycles (Akhtar, 2012;Liu and Chen, 2012).…”

Section: Introductionmentioning

confidence: 99%

A contemporary view of corporate finance theory, empirical evidence and practice

Faff

Gray

Tan

2016

Australian Journal of Management

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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Impact of the global financial crisis on Islamic and conventional stocks and bonds

Cited by 48 publications

References 56 publications

Religion and Finance

Religion and Finance

Risk, Business Cycles and Financial Crises: Evidence from Islamic and Conventional Stocks

A contemporary view of corporate finance theory, empirical evidence and practice

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