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Differentiation of Market Risk Characteristics among Sharia Compliant and Conventional Equities listed on the Pakistani Capital Market - KSE 100 Index over a selective time period

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  • Syed Adeel Hussain

Abstract

This technical paper highlights the substantive and notable Market Risk difference among Islamic and Conventional Securities with respect to their Actual Price Volatility Risk Characteristics in context of Listed Pakistani Capital Markets. The data analyzes market risk of each listed security based on price series of the last five years drawn from the KSE 100 Index. We have used KMI 30 Index within KSE 100 Index to separate Islamic Stocks from their conventional counterparts. The study has applied two different market risk measurement methods of VaR - Value at Risk calculation such as Historical Simulation and VCV – Variance Covariance. In this paper three different confidence intervals are applied distinctly but simultaneously to both methods of VaR Calculation and groups of stocks ie (Islamic/Sharia Compliant and Conventional Equities). At the end, Percentiles are used to classify VaR measurements belonging to each group of stock. The Null Hypothesis is tested using a difference between means of two populations’ z test statistic model at given 5% level of significance. The intention of writing this paper was to technically ‘fill the literature gap’ which exists within the purview of literature review covering both areas in Risk Finance and Islamic Finance.

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Bibliographic Info

Paper provided by Job Market Papers in its series 2013 Papers with number phu395.

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Date of creation: 02 Dec 2013
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Handle: RePEc:jmp:jm2013:phu395

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  1. Bacha, Obiyathulla I., 2004. "Value Preservation through Risk Management - A Shariah Compliant Proposal for Equity Risk Management," MPRA Paper 12632, University Library of Munich, Germany, revised Apr 2003.
  2. Shaikh, Salman, 2010. "Analysis of Stock Screening Principles in Islamic Mutual Funds Industry," MPRA Paper 19755, University Library of Munich, Germany.
  3. Juan Carlos Escanciano & Jose Olmo, 2007. "Backtesting Parametric Value-at-Risk with Estimation Risk," Caepr Working Papers 2007-005_updated, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  4. Seibel, Hans Dieter & Imady, Omar, 2006. "Principles and Products of Islamic Finance," Working Papers 2006,1, University of Cologne, Development Research Center.
  5. Husain, Fazal & UPPAL, Jamshed, 1999. "Stock Returns Volatility in an Emerging Market: The Pakistani Evidence," MPRA Paper 5270, University Library of Munich, Germany.
  6. Nasir M. Khilji, 1993. "The Behaviour of Stock Returns in an Emerging Market: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 593-604.
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