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On Sharia’a-compliance, positive assortative matching, and return to investment banking

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  • Basov, Suren
  • Bhatti, M. Ishaq

Abstract

In their recent paper Derigs and Marzban (2009) argued that Sharia’a-compliant strategies result in much lower portfolio performance than the conventional strategies. The main reason for their argument is of Sharia’a-compliance limits on the set of admissible investments. However, in the world of imperfect financial markets such a limitation may also have some beneficial consequences. We therefore, assume that a net disadvantage caused by such limitations is relatively small, but is magnified by equilibrium hiring strategies, which match Islamic banks with employees who have a lower average level of human capital.

Suggested Citation

  • Basov, Suren & Bhatti, M. Ishaq, 2014. "On Sharia’a-compliance, positive assortative matching, and return to investment banking," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 191-195.
    • Handle: RePEc:eee:intfin:v:30:y:2014:i:c:p:191-195
    DOI: 10.1016/j.intfin.2013.12.010
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    References listed on IDEAS

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    1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    2. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 551-575.
    3. Derigs, Ulrich & Marzban, Shehab, 2009. "New strategies and a new paradigm for Shariah-compliant portfolio optimization," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1166-1176, June.
    4. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    5. Basov Suren & Bhatti M. Ishaq, 2013. "Optimal Contracting Model in a Social Environment and Trust-Related Psychological Costs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 1-14, April.
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    Cited by:

    1. Wanke, Peter & Azad, M.D. Abul Kalam & Barros, C.P., 2016. "Predicting efficiency in Malaysian Islamic banks: A two-stage TOPSIS and neural networks approach," Research in International Business and Finance, Elsevier, vol. 36(C), pages 485-498.
    2. Saad Azmat & A. S. M. Sohel Azad & M. Ishaq Bhatti & Hamza Ghaffar, 2020. "Islamic Banking, Costly Religiosity, And Competition," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(2), pages 263-303, May.
    3. Abdelkader Derbali & Abderrazek El Khaldi & Fathi Jouini, 2017. "Shariah-compliant Capital Asset Pricing Model: new mathematical modeling," Journal of Asset Management, Palgrave Macmillan, vol. 18(7), pages 527-537, December.
    4. Kok, Seng Kiong & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "The trade-off between knowledge accumulation and independence: The case of the Shariah supervisory board within the Shariah governance and firm performance nexus," Research in International Business and Finance, Elsevier, vol. 59(C).
    5. Wahida Ahmad & David Prentice, 2023. "How Large Are Productivity Differences Between Islamic And Conventional Banks?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(05), pages 1651-1670, September.

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    More about this item

    Keywords

    Adverse selection; Islamic banks; Sharia’s law;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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