This paper investigates the dynamic causal linkages in the daily returns among four conventional and three Shariah compliant indices (such as, Financial Times Stock Exchange Shariah China Index, Asia Shariah Index, Malaysia EMAS Shariah Index, China Shanghai Stock Exchange [SSE] Composite Index, Hang Seng Index, Nikkei 225 and KOSPI) in Asia region through the application of the standard time series techniques. Essentially, the purpose of this research is to identify the extent of influence of conventional and Islamic, regional and international equity markets on Shariah-compliant equity investment in China. Our study is focused on investigating the following empirical questions: (i) Which indices do the Shariah China Index commove with? (ii) Which indices is the Shariah China Index Granger-causally related with? and (iii) Which major stock index was driving the selective conventional and Shariah-compliant stock indices? Our findings tend to suggest: (i) The Shariah China Index appears to have a theoretical and long-run comovement with all the select conventional and Shariah-compliant stock indices (as evidenced in the Cointegration and LRSM tests) (ii) The Shariah China Index is Granger-caused by all the conventional and Shariah-compliant stock indices (as evidenced in the vector error correction modelling tests) (iii) Finally, what stands out is the leadership of the China conventional SSE market followed by the Malaysia Shariah market in driving all indices including the Shariah China Index (as evidenced in the VDCs tests).

Understanding the co-movement among asset returns is a critical issue in finance, as investors can minimize risk through diversification. International investors seek alternative asset classes to diversify their portfolio. Therefore, it would be meaningful to investigate whether sukuk (Islamic bond) offer any advantages in terms of global diversification. In this context, we examined the volatilities and correlations of sovereign bond indexes in developed countries, such as the US, Canada, Germany, the UK, Australia, and Japan, and the Thomson Reuters BPA Malaysia Sukuk Index, using wavelet coherence and multivariate-GARCH analyses. The data cover the period January 2010-December 2015. The results of the study significantly highlight that wavelet coherence illustrates lower co-movement between returns on developed market bond index (the US, the UK, Australia, Canada, Germany, and Japan) with returns on the Malaysian sukuk index during the sample period. Moreover, the Malaysian sukuk market has negative unconditional correlation with the US and Canadian bond markets, which is a good sign of diversification benefits. This study reveals attractive opportunities in terms of diversification benefits, with credit quality and sharia-compliant financial sector exposure for investors who want to invest in fixed-income securities.

Some investors strive for capital appreciation while others may follow capital preservation strategies in terms of investment. In relation to that, Islamic finance receives a lot of attention from institutional investors and asset managers in the search for higher returns, lower correlation and growth potentiality. Therefore, it would be meaningful to investigate whether sukuk can offer any advantage in terms of global diversification. In such context, we have examined the volatilities and correlations of bond indices of emerging counties such as South Korea, Singapore, China, India, Indonesia, and Malaysia with Thomson Reuters BPA Malaysia Sukuk Index by applying wavelet coherence and Multivariate GARCH analyses. The data covers the period January 2010 to December 2015. We conclude that the sukuk market offers effective portfolio diversification opportunities for fixed income investors of the mentioned sample countries. Global and regional investors can avail the benefits of portfolio diversification through investment in sukuk markets but portfolio diversification is not feasible domestically. As a practical implication to the finance industry, the outcome of this research provides a framework for investigating sukuk market integration of several emerging bond markets which serve as an important platform for conducting further research.

This paper is the first attempt at testing the "time-varying" and "time-scale dependent" volatilities of and correlations between the selected Islamic stock indices of South East Asian countries and selected commodities for enhancing portfolio diversification benefits. Consistent with the results of our VECM, our analysis based on the application of the recent wavelet technique MODWT, indicates that the Singapore Islamic index is leading the other Islamic indices and the commodities. From the point of view of portfolio diversification benefits, based on the extent of dynamic correlations between variables, our results suggest that an investor should be aware that the Philippine Islamic stock index is less correlated with the crude oil in the short run (as evidenced in the continuous wavelet transform analysis) and that an investor holding the crude oil can gain by including the Malaysian Islamic stock index in the portfolio (as evidenced in the Dynamic conditional correlation analysis).

The issues of earning management has received attention from practitioners and academicians since the last couple of decades in banking sector. It is evident that bank managers practice the discretion in estimating loan/finance loss provisions for various motives such as reducing earnings variability (Agarwal, Chomsisengphet, Liu & Rhee, 2007; Kanagaretnam, 2004). Majority of the studies have been focusing on conventional banks, and only a few studies have focussed on Islamic banks, for instance, Zoubi and Al-Khazali (2007) and Othman and Mersni (2014). The significance of examining the issues in the context of Islamic banks stems from the fact that Islamic banks should not manage their earnings the way their conventional banks do. This is because the underlying theoretical basis of Islamic banks are based on Shariah principles which is different from conventional banks.

The paper investigates whether there is a significance difference between the practices of discretionary loan/finance loss provisions between Islamic and conventional banks. Same time, the paper tests whether the efficiency may influence the behaviour of discretionary loans/finance loss provisions, taken into consideration other micro and macro variables. The study utilizes panel data runs over 1996-2011 with unbalanced observations for 16 banks, of which 4 Islamic banks. In order to achieve research objectives, the two-stage approach is adopted to examine the factors that may influence the behaviour of discretionary loan/finance loss provisions with specific emphasize on the efficiency. Furthermore, efficiency scores are estimated using Data Envelopment Windows Analysis. The findings of the research show that Islamic banks employ the discretionary loans/finance loss provisions to manage their earnings. However, the magnitude of discretion of accruals is significantly lower than conventional banks with exception for foreign banks which have reported lower discretionary loans/finance loss provisions than Islamic banks. Moreover, the analysis showed that efficiency affects the overall discretionary loans/finance loss provision positively, although this impact is shaped differently for Islamic and conventional banks.

From a mere glance at Muslim countries today, we realize that they are classified as third world countries even though they are adopting a secular system. The recent statistical data of 2009 shows that the majority of people who live below poverty are found in Muslim countries such as; Afghanistan 53%, Eritrea 50%, Yemen 45%, Bangladesh 45%, Sudan 40%, Pakistan 24%, Algeria 23%, Egypt 20%, Turkey 20%, and Indonesia 18%. Some scholars related this fact to the oppression, humiliation and the bad policies which had been imposed to almost all Muslim countries during colonization and which continued up to the present time. Others related this to the incompetence and the corruption on the part of their governments. We cannot deny the above mentioned reasons as the catalyst for the spread of poverty in the Islamic world and the recent uprisings.

This study is the first attempt to investigate the relationship between the level of risky assets and capital level in a mixed Malaysian banking system covering 83 months starting December 2006. The results of dynamic OLS (DOLS) indicate positive relationship between capital ratio (CAR) and risk weighted asset ratio (RWA) in the long run. Furthermore, the causality analysis based on panel VECM and two-step dynamic System GMM indicates unidirectional causality from CAR to RWA. Our results further suggest that higher capital growth and capital buffer provide an extra cushion for the Malaysian banks to pursue relatively riskier financial activities, and the nature of risk taking behavior of Islamic banks follows that of the conventional banks.

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 ...

Recently there has been heightened concern over "contagion" in the conventional financial markets. This study is motivated by the desire to test empirically whether the contagion seen in conventional stock indexes are also present amongst Shari'ah-compliant stock indexes. A key issue in testing for both Islamic and conventional financial market contagion is to draw a distinction between "excessive" and normal co-movements across financial markets. A distinction between contagion and interdependence during periods of high volatility in financial markets has important implications for the asset allocation strategy of risk managers and for policymakers' optimal policy response to a crisis.

This study is a first attempt at testing the extent of contagion for conventional and Shari’ah-compliant stock indices. We examine the period surrounding the U.S. subprime crisis of 2007–9 and the Lehman Brothers collapse of 2008 to determine the relative extent of contagion. We find no clear evidence of contagion during the subprime crisis however, during the Lehman collapse most conventional indices showed contagion. Interestingly, the Shari’ah-compliant indices mostly do not show evidence of contagion. Collectively, our results have important implications for fund managers in terms of asset allocation risk and policymakers seeking an optimal policy response to crises.

A major issue in both Islamic finance and conventional finance is whether the stocks to the volatilities in the asset returns are substitutes or complements in terms of taking risk. An understanding of how volatilities of and correlations between asset returns change over time including their directions (positive or negative) and size (stronger or weaker) is of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against unforeseen risks. This study is the first attempt to advance the frontier of knowledge particularly in the fast growing field of Islamic Finance through the application of the recently-developed Dynamic Multivariate GARCH approach. Our study is focused on investigating whether Islamic stock indices provide special avenue for the US-based investors. Our findings based on the Dynamic Conditional Correlation (DCC) tend to suggest: both the conventional and Islamic MSCI indices of Japan, GCC ex-Saudi, Indonesia, Malaysia and Taiwan provide better diversification benefits compared to Korea, Hong Kong, China and Turkey. It tends to suggest that the Islamic countries provide better diversification benefits compared to the Far East countries with strong policy implications for the domestic and international investors in their portfolio diversification for hedging against unforeseen risks. major issue in both Islamic finance and conventional finance is whether the shocks to the volatilities in the asset returns are substitutes or complements in terms of taking risk. An understanding of how volatilities of and correlations between asset returns change over time including their directions (positive or negative) and size (stronger or weaker) is of crucial importance for both the domestic and international investors with a view to diversifying their portfolios for hedging against unforeseen risks.

The purpose of this paper is to examine the extent to which the Indonesian Shariah compliant investors can benefit from the portfolio diversification with the Islamic indices of its trading partners and selected commodities such as gold, crude oil, and cocoa. The findings tend to indicate that investors with exposure in Shariah compliant indices of Indonesia and wanting to gain more diversification benefits should invest either in the USA or India Islamic equity. Instead, the greater benefits will be obtained by Shariah compliant investors if they invest in the USA Islamic indices during long-term investment horizons. If investors want to invest in medium investment horizons, investing in India Islamic equity is a viable option. The findings further suggest that gold has a role of diversification benefits as a "safe haven" instrument for investors. It is advisable for the investors that have exposure in commodities (gold, crude oil, and cocoa) and want to invest in Indonesian Islamic equity, they should hold the portfolio for not more than 16 days to gain diversification benefits.