Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises
Purpose – The purpose of this paper is to provide empirical evidences on the impact of financial shocks on the Islamic banks vis-a-vis the conventional banks. Based on the Malaysian experience over two major financial crises, namely the 1997 Asian financial crisis and 2007 financial crisis, the study aims to test the validity of the proposition that the Islamic banks are more resilient to the financial shocks compared to the conventional banks. Design/methodology/approach – Focusing on the Malaysian data covering three sub-periods, namely, the 1997 Asian financial crisis period (July 1997-September 1999), the non-crisis period (October 1999-June 2007) and the 2007 financial crisis period (July 2007-September 2009), the study employs the impulse response functions and variance decomposition analysis based on the vector auto-regression (VAR) method. Findings – The results indicate that both the Islamic and conventional banking systems are vulnerable to financial shocks. This is contrary to the popular belief that the Islamic financial system is sheltered from the financial shocks due to its interest-free nature. Research limitations/implications – The results of this study have important implications for the risk management practices of both the Islamic and conventional banks. Originality/value – This paper contributes in providing the empirical evidence on the impact of financial shocks on the Islamic banks. To the authors' knowledge, there have been no studies comparing of the impacts of the two major financial crises on the Islamic banking sector.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 3 (2010)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=imefm Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pesaran, H. Hashem & Shin, Yongcheol, 1998.
"Generalized impulse response analysis in linear multivariate models,"
Elsevier, vol. 58(1), pages 17-29, January.
- Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
- Mansor H. Ibrahim, 2005. "Sectoral Effects of Monetary Policy: Evidence from Malaysia," Asian Economic Journal, East Asian Economic Association, vol. 19(1), pages 83-102, 03.
- Jang, Hoyoon & Sul, Wonsik, 2002. "The Asian financial crisis and the co-movement of Asian stock markets," Journal of Asian Economics, Elsevier, vol. 13(1), pages 94-104.
- Darrat, Ali F., 2002. "The relative efficiency of interest-free monetary system: some empirical evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(4), pages 747-764.
- MacDonald, Ronald & Kearney, Colm, 1987. "On the specification of granger-causality tests using the cointegration methodology," Economics Letters, Elsevier, vol. 25(2), pages 149-153.
- Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
- Chrismin Tang & Mardi Dungey & Vance Martin & Brenda Gonzalez-Hermosillo & Renee Fry, 2010.
"Are Financial Crises Alike?,"
IMF Working Papers
10/14, International Monetary Fund.
- Mosconi, Rocco & Giannini, Carlo, 1992. "Non-causality in Cointegrated Systems: Representation Estimation and Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 399-417, August.
When requesting a correction, please mention this item's handle: RePEc:eme:imefpp:v:3:y:2010:i:4:p:291-305. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If references are entirely missing, you can add them using this form.