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The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey

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  • Joshua Charap
  • Serhan Cevik

Abstract

This paper examines the empirical behavior of conventional bank deposit rates and the rate of return on retail Islamic profit-and-loss sharing (PLS) investment accounts in Malaysia and Turkey, using monthly data from January 1997 to August 2010. The analysis shows that conventional bank deposit rates and PLS returns exhibit long-run cointegration and the time-varying volatility of conventional bank deposit rates and PLS returns is correlated and is statistically significant. The pairwise and multivariate causality tests show that conventional bank deposit rates Granger cause returns on PLS accounts. These findings have policy implications in terms of price stability and financial stability.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/156.

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Length: 23
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/156

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Keywords: Interest rates; Banking; Islamic banking; bank deposit; bank deposit rates; cointegration; correlation; granger causality; standard deviation; statistics; equation; significance level; statistic; probability; time series; banking system; standard errors; equations; banking model; free banking; banking system assets; correlations; banking sector; banking industry; standard deviations; financial transaction; bank interest rates; independent variable; bank balance sheets; banking systems; bank interest; time series analysis; banking operations; probability of default; bank charges; econometrics; statistical significance; constant term; return on assets; return on investment; statistical analysis; government finance; credit risk management; maximum likelihood estimation; combination of variables; bank deposits;

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References

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  1. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
  2. Mohsin S. Khan, 1986. "Islamic Interest-Free Banking: A Theoretical Analysis (Le système bancaire islamique: analyse théorique d'un système qui ne fait pas appel à l'intérêt) (La prohibición islámica d," IMF Staff Papers, Palgrave Macmillan, vol. 33(1), pages 1-27, March.
  3. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
  5. Ebrahim, Muhammed-Shahid & Safadi, Akram, 1995. "Behavioral norms in the Islamic doctrine of economics: A comment," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 151-157, June.
  6. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
  7. Patrick A. Imam & Kangni Kpodar, 2010. "Islamic Banking," IMF Working Papers 10/195, International Monetary Fund.
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Cited by:
  1. Nabi, Mahmoud Sami, 2012. "Dual Banking and Financial Contagion," MPRA Paper 49814, University Library of Munich, Germany.
  2. Olga Krasicka & Sylwia Nowak, 2012. "What’s in it for Me? A Primeron Differences between Islamic and Conventional Finance in Malaysia," IMF Working Papers 12/151, International Monetary Fund.

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