4. Theses

The derivatives markets in the Asian region have shown significant growth and development since their inception. Similarly, derivatives market in Malaysia and Bursa Malaysia Derivatives have experienced remarkable changes and developments. This study focuses mainly on the stock index futures contract (FKLI) and its relationship with the underlying spot index (FBM KLCI). The FKLI is chosen instead of other permissible futures due to availability of the data and its relevance in the context of fund managers' asset allocation strategy. The FKLI is chosen instead of other permissible futures due to availability of the data and its relevance in the context of fund managers’ asset allocation strategy. Mainly based on intraday data, this study makes an analysis of issues on pricing efficiency, the expiration-day effects on volume and volatility, the lead lag relationship between stock index and stock index futures, in Malaysian derivatives market as a newly advanced emerging market. Based on the underlying assumption that if a mispricing were to arise, unlimited arbitrage trading would trigger the market price back to its theoretical fair value and hedging effectiveness may go down as a result of pricing inefficiency, the first essay investigates the study of pricing efficiency specifically on the extent of mispricing by contract, evolution of mispricing, and mispricing episodes. Daily data based on the cost-of-carry model and 15-minute intraday data based on the basis model are used to address the issue of pricing efficiency. This essay fills the gap by introducing 15-minute intraday data, in addition to a larger time span of daily data. The results show variations in mispricing over time under study and provide valuable information for policymakers and fund managers as the Malaysia markets become more efficient and seem to provide a better avenue to hedge their positions and protect their investment values.

Sukuk is dominating the Malaysian capital market with strong support from the government, mega-conglomerates and firms. As an important source of firms' financing, sukuk is increasingly catching up with existing conventional debt in terms of transaction volume and the number of deals. In spite of the rising interest among issuers in sukuk offers, research to appraise firm's issuance motives and the subsequent effects on shareholders' wealth upon sukuk and conventional bond announcement remains limited. Hence, through this initial study, firstly, we examine the association of firm specific characteristics with the respective debt security principles offers. Secondly, we also investigate the impact of each debt security offer announcement on issuer overall shareholders’ wealth effects. To address the first issue, we employed the dynamic GMM (both difference and system) analyses for testing the “partial adjustment model” with a view to investigating whether firms maintain an optimal target debt ratio when issuing each debt security principles, consistent with the trade-off theory key predictions. We also used the same model to examine the firm’s specific determinants of target debt ratio in an integrated approach. To address the second issue, we adopt both, “event-study” methodology and “wavelet” analysis. The aim is to examine the true dynamics of relationship between the debt security announcement and the shareholders’ wealth effects, given multi-horizon nature of investors.

This dissertation discusses a number of issues in Islamic equity, which can be broadly defined as equity investments that meet certain Shari'ah compliance requirements. A particular stock is deemed as Shari'ah compliant when it "passes" a screening process which encapsulates a number of relevant Islamic principles, rules and tenets. This process, commonly termed Shari'ah stock screening, essentially involves the negative screening or filtering of stocks. While variations may exist from one jurisdiction to another, and between a number of different Islamic index providers ... Available in physical copy only (Call Number: t HG 4551 N336)

This study investigates the roles of Shariah-compliant asset classes as well as Shariah-compliant portfolio strategies, which are divided into three separate essays. The first essay investigates both conventional and Islamic investors' problems as to whether the inclusion of Islamic and conventional asset classes may expand the frontier of their respective portfolios. The sample covers the global U.S. portfolios and Malaysian portfolios with multiple asset classes, as well as the portfolios with a specific asset class in several regions. The study uses the recent mean-variance spanning test in multiple regimes, which not only accounts for tail risk but also identifies the source of value added (tangency portfolio or global minimum variance) ...

The meaning of investments is that you sacrifice something valueable now in order to gain benefit from it in the future. Timing of the investment is of great importance (McDonald & Siegel, 1986, p. 724). One could invest in real assets, i.e. land, buildings, machines, and knowledge which are used in order to produce future goods and services. Investments could also be made in financial assets, such as stocks and bonds, which do not contribute directly to production but are used as claim-holdings on real assets. There are three main types of financial assets: fixed-income or debt securities, derivative securities and equity. Thus, investments operate mainly in financial markets. The major players of the financial market are firms, which mostly raise funds; households, which mostly save; and governments, which may act as borrowers as well as lenders. Since corporations and governments do not sell the largest part of their securities directly to individuals, the role of financial intermediaries is of great importance. Between the security issuer and the ultimate security owner, in most of the cases, financial institutions such as mutual funds, pension funds, insurance companies and banks facilitate the process (Bodie et al., 2009, p. 1-33). One of the most common measures of stock and bond market performance is by indexes. Indexes are computed and published daily, providing investors possibilities to easily monitor performance of a particular equity (Bodie et al., 2009, p. 38). As globalization has spread international trade and cross border transactions have increased. Thus, daily information of the performance of indexes from all over the world has become a very important part of daily news for investors.

In spite of the expanding number of studies investigating the effect of institutional quality on capital flows, a very few attempts has been made to investigate the impact of capital flows on the institutional quality of host countries.This study investigates the role of capital flows on the institutional infrastructure of the OIC countries, which are divided into three separate essays. The first essay investigates the impact of the official development assistance (ODA) on the institutional development of the OIC counties. The research uses system GMM, and the data for this study is obtained from 40 OIC countries for the three-year average period from 1991 to 2016. Empirical findings suggest that aid reduces the Institutional quality for the aid recipient countries. For robustness test and heterogeneous relationship among aid recipient countries, this study uses panel quantile regression and finds that foreign aid generally reduces Institutional quality, and its reduction effect is greater in less institutionally developed countries ...

In the aftermath of the recent financial crisis, the inherent linkages between banks' capital buffers and risk took center stage as policy makers promoted a more resilient global banking system. The growing recognition of Islamic banking as a viable alternative-banking model warrants the need to investigate the overall susceptibilities of Islamic banks' capital buffers (when compared to conventional banks) to unique risks emanating from their operating environments. We examine this issue over the period 2005-2012 in the 18 countries where Islamic and conventional commercial banks coexist. We employ a panel model using dynamic Generalized Methods of Moments (GMM) on a data set comprising 128 commercial banks of which 44 are Islamic commercial banks ...

Capital structure which is the mixture of debt and equity capital of a company is very important since it is related to the ability of the company to fulfil the needs of its stakeholders. The main competing theories, which attempts to understand how financing decisions are made, that have emerged and developed over the last decades are the Trade-Off Theory and the Pecking Order Theory. Trade-Off Theory predicts that firms should balance the tax benefits of debt against the cost of debt, therefore firms should have an optimal capital structure. In contrast, Pecking Order Theory does not imply that firms capital structure decision is driven by the notion of optimal ...

Constructing a portfolio or investing in the stock market, without taking into account the firms' debt level is likely to render the control of returns, volatility and systematic risk ineffective. This study focuses on the European stock market which has suffered badly during the 2008 global financial crisis. It is within this context that the role of firm leverage and its relationship to risk and returns are explored. This innovative empirical study tests the leverage effect (on volatility, systematic risk, value at risk and returns) in terms of Shari'ah stock screening, and evaluates it applying random portfolio analysis, wavelet coherency and panel dynamic GMM techniques ...

The mainstream belief that finance contributes positively to an economy has been challenged in view of financial crises that hit economies worldwide, while the notion that Islamic finance is more stable than conventional finance has been criticised as the structure often mimic conventional financing. Amidst the rapid development of Islamic finance in Malaysia, the question of whether it contributes positively to the economy is never resolved. The present paper uses 'Islamic financing' and 'Islamic deposits' as proxies to analyse the relationship between Islamic financial development and economic growth. By employing vector error correction method (VECM) and variance decomposition (VDC) analyses within the framework of autoregi'essive distributed lag (ARDL), the study documents a demand-following relationship where economic growth leads to Islamic financial development. Next, this study extends prior literature by applying non-linear autoregressive distributed lag (NARDL) model to relax linearity and symmetrical assumptions ...

Risk shifting is, axiomatically, absent in an ideal Islamic banking system, where equity holders are expected to share assets' upside and downside potential with investment account holders (depositors). The Islamic banking model, thus, provides unique paradigm with risk sharing at its core. However, the present formation of Islamic banking has grown out of conventional banking and uses many of its techniques and instruments. Whereas significant research has delineated the theoretical foundations of Islamic banking and its axiomatic characteristics, empirical assessment of the implications of present form Islamic banking is relatively limited and often focused on issues of efficiency, profitability and stability. The main objective of this dissertation is to make the initial attempt to empirically investigate the risk shifting behaviour in Islamic banks in dual banking systems of OIC member states1, using Merton (1977) and Duan et al. (1992) models. Also, unlike existing literature, this study controls for dynamic bias by applying the two-step dynamic difference GMM to an unbalanced panel of 272 conventional banks and 75 Islamic banks from 2002 to 2013 ...

Since the recent financial crises, increases in contagion and correlation between assets have reduced the possibility of minimizing risk by way of diversification. The investors are therefore, looking for alternative assets such as, commodities, Islamic portfolios, etc. However, despite the very rapid growth of Islamic finance, there has hardly been any rigorous empirical research investigating the risk-return profiles of combining commodity portfolios with Islamic equities and/or with the mainstream equities. This study is aimed at filling this gap in the finance literature ...

Financial liberalization became a key economic policy which was implemented by many emerging countries during the 1980s and 1990s. Nevertheless, the academic critiques argue that it could render domestic stock markets highly volatile and economies susceptible to economic turmoil due to the irrational and pro-cyclical nature of international capital flows, and the characteristics of the emerging markets such as market imperfections, information asymmetry, and lack of sound financial infrastructure. The studies generally conducted during the 1990s and early 2000s suggest that being small in size, less liquid, less efficient, highly volatile, and having poor quality of legal environment and governance were common characteristics of the stock markets in the emerging Islamic countries (henceforth, EIC). Supporting this view, a divergence in the performance of stock market development and economic growth appears between EIC and emerging non-Islamic countries (henceforth, ENIC) since the 1990s, in favor of the latter. The limited and relatively dated literature studying the effect of financial liberalization, which is a broader approach, generally suggests that EIC could not derive benefits to the extent that is expected by the main stream. In this regard, Is stock market liberalization (henceforth, SML) a detrimental or beneficial factor for the stock market development and economic growth in EIC in the long run? becomes the problem statement of the study. In order to address the problem statement, the dissertation examines the effect of SML on the stock market volatility, cost of capital, stock market development, and finally economic growth in both EIC and ENIC in a comparative approach. Overall, the study results drived from linear models, i.e. static panel techniques, and non-linear models, i.e. ARCH and its variants, suggest that SML reduces the cost of capital, contributes on the stock market development and economic growth in both EIC and ENIC; and the effects are stronger, at least in magnitude, in EIC. It is suggested that financial liberalization is expected to improve the financial infrastructure by forcing the local authorities to implement necessary reforms in order to eliminate the market deficiencies and improve the standards of financial system. The reformation implemented during the late 1990s and early 2000s along with the policies to liberalize domestic capital markets is the main ground behind the study results.

This study is motivated by the desire to test empirically whether the contagion seen in conventional stock indexes are also present amongst Sharia'ah-compliant stock indexes. This study is the first attempt at testing whether there has been any contagion among the Shari'ah-compliant stock indexes during the most recent international financial crisis - the US subprime crisis of 2007-2009. The study uses a technique known as the "wavelet approach" which has been very recently imported to finance from engineering sciences ...