The Islamic risk factor in expected stock returns: an empirical study in Saudi Arabia

Merdad, Hesham; Hassan, M. Kabir; Hippler, William J.

doi:10.1016/j.pacfin.2015.04.001

Cited by 53 publications

(32 citation statements)

References 25 publications

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“…The price ranges of Islamic and conventional stocks are comparable, which may suggest that investors have no preference for one class over the other, based on price. Islamic stocks (0.04%) have lower average daily stock returns than conventional stocks (0.06%), which is consistent with the results of Merdad et al (2015). Average stock return volatility and momentum are lower for Islamic stocks than conventional stocks, which may attract individual investors.…”

Section: Descriptive Statisticssupporting

confidence: 84%

“…To the contrary, other studies find the risk-adjusted returns of Islamic equities are no different from conventional returns (Ahmad and Ibrahim (2002); Girard and Hassan (2008); Dharani and Natarajan (2011);Walkshausl and Lobe (2012)). Adding to the already mixed results, the recent study of Merdad et al (2015) show that, in Saudi Arabia, Islamic stocks have lower stock returns, compared to their conventional counterparts, even after accounting for market, size, and book-to-market effects.…”

Section: Previous Findings On Islamic and Conventional Stock Performancementioning

confidence: 98%

“…Recently, Merdad, Hassan, and Hippler (2015) find that, by complying with Sharia law, firms achieve lower stock returns than non-compliant, or conventional, firms. We extend their analysis by examining whether the return difference between the two classes of stock are due to market segmentation, caused by religious-based restrictions on the portfolios of Islamic investors, or from liquidity effects caused by investor recognition, or both.…”

Section: Introductionmentioning

confidence: 99%

“…Canepa and Ibnrubbian (2014) andMerdad et al (2015) use an alternative classification of Dr.Al-Osaimi, which has the same level of strictness and popularity as Dr.Al-Fozan's, but it does not cover all sectors of the equity market. According to Dr. Al-Osaimi, the reason for not classifying stocks in some sectors is that these sectors usually have their own Sharia board classify stocks.…”

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confidence: 99%

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The Effect of Implicit Market Barriers on Stock Trading and Liquidity

2018

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We compare the performance of Islamic and conventional stock returns in Saudi Arabia in order to determine whether the Saudi market exhibits characteristics that are consistent with segmented markets and investor recognition effects. We sample the daily stock returns of all Saudi firms from September 2002 to 2015 and calculate important measures, including idiosyncratic volatility (Ang et al, 2006), market integration (Pukthuanthong and Roll, 2009), systematic turnover (Loughran and Schultz, 2005), and stock turnover and liquidity (Amihud, 2002). Integration tests report that Islamic stocks are more sensitive to changes in global and local macroeconomic variables than conventional stocks, supporting the hypothesis that the Islamic and conventional stock markets are segmented in Saudi Arabia. In addition, our results show that Islamic stocks have a broader investor base, lower idiosyncratic risk, higher systematic turnover, and are more liquid than conventional stocks, which support the investor recognition hypothesis. Our results provide new evidence on asset pricing in emerging markets, the evolving Islamic financial markets, and the potential impact of other implicit market barriers on global financial markets. AbstractWe compare the performance of Islamic and conventional stock returns in Saudi Arabia in order to determine whether the Saudi market exhibits characteristics that are consistent with segmented markets and investor recognition effects. We sample the daily stock returns of all Saudi firms from September 2002 to 2015 and calculate important measures, including idiosyncratic volatility (Ang et al, 2006), market integration (Pukthuanthong and Roll, 2009), systematic turnover (Loughran and Schultz, 2005), and stock turnover and liquidity (Amihud, 2002). Integration tests report that Islamic stocks are more sensitive to changes in global and local macroeconomic variables than conventional stocks, supporting the hypothesis that the Islamic and conventional stock markets are segmented in Saudi Arabia. In addition, our results show that Islamic stocks have a broader investor base, lower idiosyncratic risk, higher systematic turnover, and are more liquid than conventional stocks, which support the investor recognition hypothesis. Our results provide new evidence on asset pricing in emerging markets, the evolving Islamic financial markets, and the potential impact of other implicit market barriers on global financial markets.

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Section: Descriptive Statisticssupporting

confidence: 84%

Section: Previous Findings On Islamic and Conventional Stock Performancementioning

confidence: 98%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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The Effect of Implicit Market Barriers on Stock Trading and Liquidity

2018

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“…Moreover, the insulation of the aggregate portfolio of Islamic stocks from the interest rate risk is supported. In this special issue, Merdad et al (2015) introduces a novel risk factor in expected stock returns, which they term as the Islamic risk factor. Being Shari"ah-compliant entails the application of Islamic principles to firm operations.…”

Section: Shari'ah-compliant Financial Investmentmentioning

confidence: 99%

Issues in Islamic banking and finance: Islamic banks, Shari’ah-compliant investment and sukuk

Ibrahim

2015

Pacific-Basin Finance Journal

104

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Harvesting Islamic risk premium with long–short strategies: A time scale decomposition using the wavelet theory

Ahroum¹,

Achchab²

2019

Int. J Fin Econ

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The impact of the Islamic screening on the performance of stock and sukuk investments is subject of a serious debate. The aim of this paper is to contribute to the ongoing studies on Islamic markets by giving new insights about characteristics of the Islamic risk premium. To attempt this objective, we adopt a risk premia methodology using long–short strategies and a time scale decomposition to find out the scale and the intensity degree of this effect over time. Furthermore, we consider the Islamic risk premium as a market factor. Wavelet analysis results in Malaysia highlight the presence of the Islamic effect at low frequency bands and a higher intensity among the corporate debt market. However, this approach's effectiveness is conditioned to the existence of Islamic and conventional benchmarks.

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The Islamic risk factor in expected stock returns: an empirical study in Saudi Arabia

Cited by 53 publications

References 25 publications

The Effect of Implicit Market Barriers on Stock Trading and Liquidity

The Effect of Implicit Market Barriers on Stock Trading and Liquidity

Issues in Islamic banking and finance: Islamic banks, Shari’ah-compliant investment and sukuk

Harvesting Islamic risk premium with long–short strategies: A time scale decomposition using the wavelet theory

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