IDEAS home Printed from https://ideas.repec.org/a/abd/kauiea/v4y1992i1no1p3-34.html

Debt and Equity in a Primary Financial Market: A Theory with Islamic Implications سندات الدين والأسهم في سوق مالية أولية ـ نظريتها ودلالاتها الإسلامية

Author

Listed:
  • SEIF I. TAG EL-DIN

    (Ministry of Planning, Riyadh)

Abstract

Emphasizing risk averse nature of fund suppliers in an uncertain environment, this paper establishes the possibility of a riba-free Pareto optimality in a primary financial market, explaining real life dominance of the mixed debt/equity system in terms of deviation from informational efficiency. Risk premia normally associated with equity returns are definite indicators of risk-aversion on the part of demand side real investors. Under totally undiversifiable risk, a financial investor may prefer equity to risk free asset even though he is more risk-averse than the demand side issuer of equity. It concludes that free market dynamic forces generate a financial order giving privileges to active demanders of funds rather than sympathizing' with risk-averse suppliers of funds as conventional analysis implies. Theoretical claims of efficiency losses in the financial supply process due to Islamization appear to be groundless. يفترض هذا البحث كراهية المخاطرة لدى مقدمي الأرصدة في بيئة تتسم بعدم التأكد ، ويبرهن على إمكان تحقيق أمثلية باريتو في سوق مالية أولية خالية من الربا، كما يعلل البحث ظهور النظام المخاطرة للتمويل بسندات الدين والأسهم بأنه نتيجة للانحراف عن حالة الكفاءة في المعلومات. ويبين أن المستثمر المالي الذي يواجه خطرا غير قابل للتنويع ( التشتيت) ، قد يفضل اقتناء ( الأسهم ) على اقتناء سندات الدين العديمة المخاطرة حتى لو كان هذا المستثمر أكثر كراهية للمخاطرة من المصدر الأول للأسهم. ويستنتج البحث أن القوى الدينامية في سوق حرة تولد نظاما ماليا يحابي طالبي الأرصدة النشطين ، أكثر مما يتعاطف ـ كما يدعي التحليل التقليدي ـ مع عارضي الأرصدة الكارهين للمخاطر. ويبدو للباحث أنه لا أساس للدعوى القائلة بأن أسلمة النظام المالي قد تؤدي إلى خسارة بعض الكفاءة في عملية عرض الأرصدة.

Suggested Citation

  • Seif I. Tag El-Din, 1992. "Debt and Equity in a Primary Financial Market: A Theory with Islamic Implications سندات الدين والأسهم في سوق مالية أولية ـ نظريتها ودلالاتها الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 4(1), pages 3-34, January.
    • Handle: RePEc:abd:kauiea:v:4:y:1992:i:1:no:1:p:3-34
    DOI: 10.4197/islec.4-1.1
    as

    Download full text from publisher

    File URL: https://iei.kau.edu.sa/Files/121/Files/153899_04-01-SeiFITagElDin.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.4197/islec.4-1.1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hirshleifer, J & Riley, John G, 1979. "The Analytics of Uncertainty and Information-An Expository Survey," Journal of Economic Literature, American Economic Association, vol. 17(4), pages 1375-1421, December.
    2. Friedman, Milton, 1966. "Essays in Positive Economics," University of Chicago Press Economics Books, University of Chicago Press, number 9780226264035, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Syed Adeel Hussain, 2013. "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," 2013 Papers phu395, Job Market Papers.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schernberg, Hélène, 2025. "Social genetic insurance: A life-cycle perspective," Journal of Health Economics, Elsevier, vol. 101(C).
    2. MacAuley, Molly K., 2005. "The Value of Information: A Background Paper on Measuring the Contribution of Space-Derived Earth Science Data to National Resource Management," Discussion Papers 10839, Resources for the Future.
    3. Carlos A. Rodríguez, 2018. "Fuentes de las fluctuaciones macroeconómicas en Puerto Rico\Sources of macroeconomic fluctuations in Puerto Rico," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 33(2), pages 219-252.
    4. Karsten Mause, 2009. "Too Much Competition in Higher Education? Some Conceptual Remarks on the Excessive‐Signaling Hypothesis," American Journal of Economics and Sociology, Wiley Blackwell, vol. 68(5), pages 1107-1133, November.
    5. Zhang, Daowei, 2001. "Faustmann in an uncertain policy environment," Forest Policy and Economics, Elsevier, vol. 2(2), pages 203-210, June.
    6. Gustavson, Kent & Lonergan, Stephen C. & Ruitenbeek, Jack, 2002. "Measuring contributions to economic production--use of an Index of Captured Ecosystem Value," Ecological Economics, Elsevier, vol. 41(3), pages 479-490, June.
    7. McNulty, Mark S., 1985. "Information usage in the formation of price expectations: theory and econometric tests," ISU General Staff Papers 1985010108000013085, Iowa State University, Department of Economics.
    8. Jesus Munoz, 2011. "Orthodox versus Heterodox (Minskyan) Perspectives of Financial Crises: Explosion in the 1990s versus Implosion in the 2000s," Economics Working Paper Archive wp_695, Levy Economics Institute.
    9. Mark C. Freeman & Ben Groom & Richard Zeckhauser, 2015. "Better Predictions, Better Allocations: Scientific Advances and Adaptation to Climate Change," NBER Working Papers 21463, National Bureau of Economic Research, Inc.
    10. Jan‐Erik Lane & Reinert Maeland, 2006. "International Organisation as Coordination in N‐Person Games," Political Studies, Political Studies Association, vol. 54(1), pages 185-215, March.
    11. Shokoufeh Pourshahabi & Nasser Talebbeydokhti & Gholamreza Rakhshandehroo & Mohammad Reza Nikoo, 2018. "Spatio-Temporal Multi-Criteria Optimization of Reservoir Water Quality Monitoring Network Using Value of Information and Transinformation Entropy," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 32(10), pages 3489-3504, August.
    12. Pasquale Schiraldi, 2006. "Second-Hand Markets and Collusion by Manufacturers of Semidurable Goods," Boston University - Department of Economics - Working Papers Series WP2006-028, Boston University - Department of Economics.
    13. Peter A. F. Fraser‐Mackenzie & Tiejun Ma & Ming‐Chien Sung & Johnnie E. V. Johnson, 2019. "Let's Call it Quits: Break‐Even Effects in the Decision to Stop Taking Risks," Risk Analysis, John Wiley & Sons, vol. 39(7), pages 1560-1581, July.
    14. Wang, Lijian & Béland, Daniel & Zhang, Sifeng, 2014. "Pension fairness in China," China Economic Review, Elsevier, vol. 28(C), pages 25-36.
    15. Luis Eeckhoudt & Christian Gollier & Giovanni Immordino, 2001. "How Diagnostic Tests Affect Prevention: a Cost-Benefit Analysis," CSEF Working Papers 53, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    16. Danielian, Armen, 2025. "Regulating electricity spot markets during extreme events: The 2021 Texas case," Utilities Policy, Elsevier, vol. 93(C).
    17. Andrew T. Young, 2008. "Replacing incomplete markets with a complete mess: Katrina and the NFIP," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 35(8), pages 561-568, July.
    18. Kylaheiko, Kalevi, 1998. "Making sense of technology: Towards a synthesis between neoclassical and evolutionary approaches," International Journal of Production Economics, Elsevier, vol. 56(1), pages 319-332, September.
    19. Edgardo Bucciarelli & Nicola Mattoscio, 2021. "Reconsidering Herbert A. Simon’s Major Themes in Economics: Towards an Experimentally Grounded Capital Structure Theory Drawing from His Methodological Conjectures," Computational Economics, Springer;Society for Computational Economics, vol. 57(3), pages 799-823, March.
    20. Sanford Ikeda, 2018. "The nature and limits of Gary Becker’s theory of racial discrimination," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 31(4), pages 403-417, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:abd:kauiea:v:4:y:1992:i:1:no:1:p:3-34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: King Abdulaziz University, Islamic Economics Institute. (email available below). General contact details of provider: https://edirc.repec.org/data/cikausa.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.