IDEAS home Printed from https://ideas.repec.org/a/grg/01biss/v1y2010i1p180-211.html
   My bibliography  Save this article

DEFAULT RISK IN ISLAMIC EQUITY RETURN (THE CASE of KUALA LUMPUR STOCK EXCHANGE)

Author

Listed:
  • Misnen Ardiansyah

    (Islamic University Yogyakarta, Indonesia)

  • Abdul Qoyum

    () (University of Malaysia)

Abstract

Default risk is an important problem for the Islamic financial market particularly Islamic capital market. In Islamic capital market there are many instruments such as Islamic equity, Islamic bond, Islamic unit trust, and so on. All of this instrument have worked together to make a balance in Islamic financial market. If one of the instruments faces default problems so the other instrument will also get the effect of this case. This research tries to examine the impact of the default to the Islamic equity return. This research also study about the correlation between the size, book to market ratio (BM) and the default probability (DP). This research use Merton’s model to determine the probability default in Islamic capital market. This is the first research that uses the Merton’s model to determine and to predict the default probability of the Islamic company. To answer the research question this study focuses in Islamic capital market in Malaysia that well-known as a leader in Islamic finance. It uses regression to examine the impact of the size, BM to PD. In addition, to measure impact of the PD to Islamic equity return this research also uses regression model. This Research find several conclusions. First, size of Islamic company has negative influence to the PD. If the size of firm increases 1% the PD will decrease around 1.112E-05. Between size and PD there is medium correlation that is shown by the R square which is about 34.9%. Second, Book to Market ratio does not have significant correlation with the PD. Third, this research also finds that the PD does not have impact to the return of Islamic equity. It means that the default probability of Islamic companies in Malaysia does not have impact to the return of Islamic equity

Suggested Citation

  • Misnen Ardiansyah & Abdul Qoyum, 2010. "DEFAULT RISK IN ISLAMIC EQUITY RETURN (THE CASE of KUALA LUMPUR STOCK EXCHANGE)," Journal of Global Business and Economics, Global Research Agency, vol. 1(1), pages 180-211, July.
  • Handle: RePEc:grg:01biss:v:1:y:2010:i:1:p:180-211
    as

    Download full text from publisher

    File URL: http://www.globalresearch.com.my/journal/business_v01n01/0012_abstract_PG180-211.pdf
    Download Restriction: no

    File URL: http://www.globalresearch.com.my/journal/business_v01n01/business_v01n01.htm
    Download Restriction: no

    More about this item

    JEL classification:

    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

    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:grg:01biss:v:1:y:2010:i:1:p:180-211. 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: (editor). General contact details of provider: http://www.globalresearch.com.my/journal.htm .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.