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Are Islamic risk factors blessings or curse for stock return? evidence from Malaysia based on dynamic GMM and quantile regression approaches

Author

Listed:
  • Hosen, Mosharrof
  • Masih, Mansur

Abstract

This paper is motivated by the heightened interest in investing in Islamic equities. The paper is the first attempt at analysing the Islamic-effect in a cross-sectional stock return framework to individual 141 Islamic and non- Islamic firms using the dynamic GMM and Quantile regression techniques and we believe this is the first paper that investigates the Islamic-effect in such a context. We combine a unique Malaysian data set of individual Islamic stocks (as opposed to aggregate stock indices) since 1997 with a new method where we apply Islamic business activity and financial ratio screens to the universe of Malaysian stocks. Results tend to indicate that there is no significant relationship between Malaysian Islamic firms and average stock returns. We extend our results by using a Quantile regression approach to show that the non-significant Islamic effect is, in fact, changing at different percentiles that affect the cross-sectional expected returns of Malaysian common stocks. Results tend to show that some focus variables like market value and book to market and control variable, oil price are not significant at different percentiles, and this result has important implications for the growing Islamic finance industry around the world.

Suggested Citation

  • Hosen, Mosharrof & Masih, Mansur, 2017. "Are Islamic risk factors blessings or curse for stock return? evidence from Malaysia based on dynamic GMM and quantile regression approaches," MPRA Paper 79738, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:79738
    as

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    File URL: https://mpra.ub.uni-muenchen.de/79738/1/MPRA_paper_79738.pdf
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    References listed on IDEAS

    as
    1. Buerhan Saiti & Obiyathulla Ismath Bacha & Mansur Masih, 2016. "Testing the Conventional and Islamic Financial Market Contagion: Evidence from Wavelet Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(8), pages 1832-1849, August.
    2. Ahmad Monir Abdullah & Buerhan Saiti & Mansur Masih, 2016. "The impact of crude oil price on Islamic stock indices of South East Asian countries: Evidence from MGARCH-DCC and wavelet approaches," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(4), pages 219-232, December.
    3. Andreas G.F. Hoepner & Hussain G. Rammal & Michael Rezec, 2011. "Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries," The European Journal of Finance, Taylor & Francis Journals, vol. 17(9-10), pages 829-850, November.
    4. Buerhan Saiti & Obiyathulla I. Bacha & Mansur Masih, 2014. "The diversification benefits from Islamic investment during the financial turmoil: The case for the US-based equity investors," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(4), pages 196-211, December.
    5. Fikriyah Abdullah & Taufiq Hassan & Shamsher Mohamad, 2007. "Investigation of performance of Malaysian Islamic unit trust funds: Comparison with conventional unit trust funds," Managerial Finance, Emerald Group Publishing, vol. 33(2), pages 142-153, January.
    6. Al-Khazali, Osamah & Lean, Hooi Hooi & Samet, Anis, 2014. "Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 29-46.
    7. Dawood Ashraf, 2016. "Does Shari’ah Screening Cause Abnormal Returns? Empirical Evidence from Islamic Equity Indices," Journal of Business Ethics, Springer, vol. 134(2), pages 209-228, March.
    8. Majdoub, Jihed & Mansour, Walid, 2014. "Islamic equity market integration and volatility spillover between emerging and US stock markets," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 452-470.
    9. Dewandaru, Ginanjar & Bacha, Obiyathulla Ismath & Masih, A. Mansur M. & Masih, Rumi, 2015. "Risk-return characteristics of Islamic equity indices: Multi-timescales analysis," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 115-138.
    10. Walkshäusl, Christian & Lobe, Sebastian, 2012. "Islamic investing," Review of Financial Economics, Elsevier, vol. 21(2), pages 53-62.
    11. Merdad, Hesham Jamil & Kabir Hassan, M. & Hippler, William J., 2015. "The Islamic risk factor in expected stock returns: an empirical study in Saudi Arabia," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 293-314.
    12. Hassan, Abul & Antoniou, Antonios & Paudyal, D Krishna, 2005. "Impact Of Ethical Screening On Investment Performance: The Case Of The Dow Jones Islamic Index," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 12, pages 68-97.
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    More about this item

    Keywords

    Islamic risk factors; Islamic equities; Malaysia; Dynamic GMM; Quantile regression;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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