We assess the contagion effect of the global financial crisis (GFC) and the European debt crisis (EDC) on Islamic and conventional stock market indices of the US, GCC and Malaysia. We run the asymmetric dynamic conditional correlation GARCH specification on daily closing prices of relevant indices from 1 January 2006 through 31 December 2016. Our results show that the Malaysia Islamic stock market is exempted from the contagion effect of GFC and EDC when the shock stems from the US Islamic stock market. Investors in the US Islamic equity markets can create a safety net by reallocating some of their portfolios into Malaysia Islamic stock market, which appears to be more resilient. However, we do find a significant contagion influence between the US Islamic and GCC Islamic stock market, suggesting that the GCC Islamic stock market cannot provide an effective hedge for the US investors seeking a Shariah-compliant investment. Contagion effect generally is inconsistent and not significant for conventional stock markets of these three countries.

During the last two decades, the phenomenon of financial contagion has been investigated in numerous pieces of research. In spite of its severe implications for the stability of domestic financial systems as well as potential diversification benefits of international portfolio investment, there has yet to be universally agreed conclusion on the relevance of financial contagion. Thus, our current study has been designed to apply the meta-analysis approach to investigate the statistical significance of financial contagion based on past empirical contagion studies. Our meta-analysis concludes that financial contagion is a significant phenomenon. As implications, policy makers should establish contingent credit lines to ensure the liquidity of financial market during the turbulence time, and portfolio investors should diversify away from the potentially contagious markets. It is suggested that future contagion-based meta-analysis may include contagion studies with different methodologies, as well as meta-regression analysis to provide more insights on the sources of variability in the contagion studies.

This article undertakes an in-depth study of the foreign exchange exposure of Malaysian listed firms. We examine several issues related to firm-specific and overall exposure, including an evaluation of the efficacy of adopting a hard-peg on such exposure. Our sample consists of 158 listed firms and spans the 16 year period, 1990–2005. A multivariate model using four bilateral exchange rates is used to determine firm level exposure while panel data analysis using a random-effects Generalized Least Squares (GLS) model is used to determine system-wide or aggregate sample exposure. We find a total 71% of our sample firms to have significant exchange rate exposure, a rate substantially higher than that reported for most countries, especially developed ones.

This paper examines several issues related to the implementation of ESOs among Malaysian companies. We examine a total of 52 companies, 26 ESO firms and their matched industry peers over a span of 12 years. We find ESO firm stocks to have marginally higher mean returns and lower volatility than do their pre-ESO peers. Malaysian companies are more likely to initiate ESOs when the market valuation of their stocks is low. If there is any timing, ESO initiation is timed to be most favourable to employee recipients. Market reaction to ESO announcements is significantly negative. Furthermore, stock prices do not seem to recover to pre-announcement levels during at least the subsequent 20 trading days or one calendar month. In line with US findings, operating performance deteriorates for ESO companies. Comparative analysis of control firms rules out industry or external factors as elements of the deterioration. Firm size has been identified in previous studies as a determinant of market reaction and post-ESO performance. Indeed we find this to be the case for Malaysian ESOs. We find a positive announcement effect for large firms but a significantly negative one for small firms. Though puzzling, the market reaction makes sense when we consider the poor operating performance post-ESO of small firms relative to large ones. It appears that the impact of an ESO is negative for small firms but neutral for large ones. The market appears to anticipate this outcome and react accordingly. An ESO realigns the interest of the stakeholders of a company. Employee recipients gain, while shareholders mostly lose. Bondholders of large ESO firms are only marginally affected, but those of small firms stand to lose from the diminution of profits and increased leverage post-ESO. Based on our results, it will be difficult to make a case that the objectives of and rationale for an ESO are being fulfilled.

We examine the risk minimization utility of Islamic stock and sukuk (bond) indices by studying their linkages against traditional global counterparts. We first employ an asymmetric power ARCH-based ADCC model on an extended dataset employed by Kenourgios et al. (2016). Our sample ranges from July 2007 to June 2021 covering the Global Financial Crisis (GFC), the European Sovereign Debt Crisis (ESDC), and the COVID-19 pandemic. Econometric tests suggest strong evidence of coupling in the bulk of Islamic equity indices. A handful of emerging market indices constitute exceptions. Qualitatively similar results emerge from time–frequency analysis via wavelet tools, revealing pervasive coupling in both returns and volatility series. The linkages are scale-dependent in only a few pairs. In contrast, sukuk indices are uncoupled from their global fixed income counterparts and relevant risky debt portfolios. In sum, the risk-return characteristics of Islamic equities (especially in developed economies) remain coupled to major global benchmarks and therefore are unlikely to appeal as safe haven candidates. The converse applies to sukuk, which promises potential portfolio diversification benefits and safe haven status in ‘normal’ and crisis periods.