Moral Behavior in Stock Markets: Islamic finance and socially responsible investment
AbstractThis paper addresses the puzzle of why the inclusion of non-financial social justice or religious criteria by professional fund managers has been so popular in Malaysia and yet has had to date relatively little influence in the United States stock market. Drawing from over 125 ethnographic interviews with financial workers in Malaysia, this paper argues that moral investment behavior in stock markets is shaped primarily by ‘market structure’ rather than by ‘mandates.’ In both countries mandates are a weak form of social control of fund manager’s behavior. This is because mandates are not principal-agent contracts but are primarily marketing exercises and cultural tools. Social investing in the United States is weak because it relies solely on mandates to communicate clients’ ethical desires to their fund managers. Islamic and Ethical finance in Malaysia is strong because Islamic social movements have reformed the Malaysian stock market’s structure. Specifically, a uniform interpretation of Islamic investing was institutionalized with the creation of a nearly-unique quasi-governmental body. As a consequence, Islamic principles systematically influence the behavior of corporations listed in Malaysia, at present narrowly, but with the potential for wider influence in future. The paper closes with implications for social investment in the United States.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 9477.
Date of creation: 15 Mar 2008
Date of revision:
Investor Behavior; Ethics; Malaysia; United States; Islamic Finance; Socially Responsible Investment;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
- Z10 - Other Special Topics - - Cultural Economics - - - General
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
- A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
- P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-CFN-2008-07-20 (Corporate Finance)
- NEP-CWA-2008-07-20 (Central & Western Asia)
- NEP-FMK-2008-07-20 (Financial Markets)
- NEP-SEA-2008-07-20 (South East Asia)
- NEP-SOC-2008-07-20 (Social Norms & Social Capital)
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