An efficient market has been theoretically proven to be a key component for effective and efficient resource allocation in an economy. This paper incorporates econophysics with Efficient Market Hypothesis to undertake a comparative analysis of Islamic and developed countries’ markets by extending the understanding of their multifractal nature. By applying the Multifractal Detrended Fluctuation Analysis (MFDFA) we calculated the generalized Hurst exponents, multifractal scaling exponents and generalized multifractal dimensions for 22 broad market indices. The findings provide a deeper understanding of the markets in Islamic countries, where they have traces of highly efficient performance particularly in crisis periods. A key finding is the empirical evidence of the impact of the ‘stage of market development’ on the efficiency of the market. If Islamic countries aim to improve the efficiency of resource allocation, an important area to address is to focus, among others, on enhancing the stage of market development

This study attempts to investigate the issue of integration of Islamic equity markets (i) not only whether these markets are moving together or not (ii) but also whether the permanent and temporary components of these markets are moving together or not. Our evidence tends to indicate that these selected Islamic markets are bound together by one cointegrating relationship with the Euro zone Islamic equity market being the most leading one and the U.K. Islamic equity market being the follower. Beveridge-Nelson (BN) time series decomposition analysis reinforces the integration by indicating that both the permanent and transitory components of all these Islamic equity indices tend to move almost together leading to further integration of the Islamic equity markets. Finally, the study tends to suggest that the financial crises did affect the investments in Islamic Equity markets. The findings of this study are also consistent with the Shariah views of economic and financial integration and have strong policy implications.

The current global market is not seeing enough investment products catered to impact investing strategy, especially in the public equity context; this gap needs to be addressed as the construct of their massive size and relationships across the supply chain would implicitly cause social and environmental impacts at every level. Thus, investors seeking to impart positive changes beyond mere financial returns must also assess the positive and negative impacts oftheir public equities portfolio as the bulk of their capital's impact lies there. In assessing non-financial impacts, big data could be leveraged to materialise these impacts. The study explores the big data ecosystem and suggests ways of incorporating them towards impact investing strategy applied to the asset management context. This includes establishing the current trend of utilising big data in academic and industry context, and identifying best practices to act as a reference.

This study constructs active Islamic portfolios using a multi-style rotation strategy, derived from the three prominent styles, namely, momentum, value, and quality investing. We use the stocks that are consistently listed in the U.S. Dow Jones Islamic index for a sample period from 1996 to 2012. We also include two macroeconomic mimicking portfolios to capture the premiums of industrial production growth and inflation innovation, accommodating the economic regime shifts. Based on the information coefficients, we find the six-month momentum and the fractal measure as momentum factors; the enterprise yield (gross profit/TEV) and the book to market ratio as valuation factors; the gross profit to total assets, the return on capital, and the scaled total accruals as quality factors. We further construct active portfolios using the augmented Black Litterman (ABL) factor model to avoid the factor alignment problem, with the factor views predicted using Markov Switching VAR, MIDAS, and Bayesian Model Averaging. The out-of-sample performance of our portfolios can produce information ratios of 0.7–0.8 over the composite indices, and information ratios of 0.42–0.48 over the style indices, with the annualized alphas of 10–11%. Even when we put the constrained tracking error of 1% over the benchmark, our portfolios still produce information ratios of 0.9–1.2 before transaction costs, and 0.6–0.8 after transaction costs. We provide intuitive explanations for each premium changing over time, and suggest the promising strategy for Islamic equity investors to outperform the market.

Globally, the awareness about sustainability has increased due to the lingering environment, social and governance-related issues. In this perspective, the role of social media and consumer awareness are important since they influence the corporate sector to care for sustainable development. Banks, being very important to the economy, contribute to sustainability through their internal (through governance, data security, etc.) and external (through environment-friendly loans , financial inclusion, etc.) practices. These practices are collectively called as environment, society, and governance (ESG) sustainability. ESG practices by banks are important since they operate on public funds, have interconnections with the businesses and at times bailed out at the expense of taxpayers. An intriguing question, though, is whether these ESG activities impact bank profitability and risk. Further, as identified in the literature, there are certain moderators such as competition and institutions which may impact the ESG-profitability and ESG-risk relationship. We investigate these relationships for Organization for Islamic Countries (OIC) and Non-OIC countries. Specifically, we employ data of 341 banks from 65 countries, further divided into Non-OIC (54 countries, 295 banks) and OIC countries (11 countries, 46 banks). ESG data has been used for the years 2007-2016 while the dynamic panel model has been estimated using the Generalized Methods of Moments technique ...

Despite the rapid growth of the halal economy during the last decades, the number of empirical researches related to the determinants of international halal trade is still limited. This study provides an initial attempt to investigate the factors that impact the value of halal trade flow. It focuses specifically on the halal F&B sector which is the biggest segment of the halal economy. To overcome the limitations of halal trade database, the study applied the WTO assumption when assigning HS codes on the specific trade concerns database (in the case of halal food and beverage) together with the Shariah principle of "presumption of permissibility" to acquire an approximate value of halal F&B trade between countries. The tested samples contain bilateral trade information of 59 countries (20 OIC members), selected according to their economic size and value of F&B exports. The estimation period covers the period from 2007 to 2016. The examination period is limited due to the availability of restriction on religion data which is one of the focused variables. In addition, the study did not exclude the world financial crisis period (2007-2008) because of the necessity in the nature of an F&B product that less elastic to the impact of the financial crisis. In terms of methodology, we applied the gravity model which is the dominant empirically tested model of international trade as the ground model of the analysis, then imposed the Poisson Pseudo-Maximum Likelihood (PMML) which is highly recommended and widely accepted as workhorse estimator for gravity model as the main method of the regression test. The method has an advantage in dealing with the presence of heteroscedasticity, heterogeneity, autocorrelation, and the issue of zero-valued trade observation which frequently observed in bilateral trade.

We provide a new contribution to trading strategies by using multi-fractal de-trended fluctuation analysis (MF-DFA), imported from econophysics, to complement various momentum strategies. The method provides a single measure that can capture both persistency and anti-persistency in stock prices, accounting for multifractality. This study uses a sample of Islamic stocks listed in the U.S. Dow Jones Islamic market for a sample period covering 16 years starting in 1996. The findings show that the MF-DFA strategy produces monthly excess returns of 6.12%, outperforming other various momentum strategies. Even though the risk of the MF-DFA strategy may be relatively higher, it can still produce a Sharpe ratio of 0.164, which is substantially higher than that of the other strategies. When we control for the MF-DFA factor with the other factors, its pure factor return is still able to yield a monthly excess return of 1.35%. Finally, we combine the momentum and MF-DFA strategies, with the proportions of 90/10, 80/20, and 70/30 and by doing so we demonstrate that the MF-DFA measure can boost the total monthly excess returns as well as Sharpe ratio. The value added is non-linear which implies that the additional returns are associated with lower incremental risk

This research aims to examine the relationship between Islamic banks' profitability and shareholders' value with the market structures, ownership structures, and financial risk factors, and to test for any differences in these performances between the Islamic and conventional banks. The impacts of both market and ownership structures and financial risks of banking performance is recognized globally and critical for the banking industry. The market and ownership structures are considered pertinent as they indicate competitive environment in which banks can lower costs, extend access to finance, and build effectiveness while garnering impacts of the financial risks will promote financial stability. In addressing the research questions and research objectives this study utilized balanced panel data of a sample of 60 commercial banks out of which, 17 are Islamic banks from the GCC countries during 2003-2015 periods. Four models were formula ted and estimated for each performance indicator using the PCSEs technique based on the results of diagnostic tests ...

Sustainability trends present risks and opportunities for companies and various stakeholders. Profits can be derived from doing good: Islamic sustainability equity in vesting offers competitive risk-return profiles at the levels of individual asset and portfolio of global assets particularly during economic expansion, equity bullish and subprime crisis periods. Islamic finance industry should proactively drive main stream sustainability investing.

Although the well-functioning financial structure is, in general, a key to long-term sustainable economic growth and overall stability, the debate on the relationship between financial development and economic growth remains non-fading. The theoretical literature provides startlingly different and sometimes conflicting views on the finance growth nexus. In addition to this non-fading debate on finance - growth nexus, the degree of banking competition attracted increasing attention in recent years. Banking consolidations, merger and acquisitions, fuelled by overall banking deregulations and the lowering of economic barriers led to structural changes within the banking and financial environment. This prompted concerns among some observers over the potential for monopoly power in local banking markets. In short, there are two major, but contradicting, views. On one side, there are those who support competitive banking structure as it promotes competitive market practices that lead to efficiency. On the other, there are also those who argue that banks with monopolistic power (bank concentration) may spur economic growth as they are more capable of information collection, screening and monitoring borrowers ...

Although literature on shadow economy has been growing, the examination is scarce in the case of developing countries, especially the Organization of Islamic Cooperation (OIC) economies. In this study, we develop various testable hypotheses related to shadow economy. We investigate the determinants of shadow economy across a large sample of 141 countries and examine whether it varies across OIC (42) and non-OIC (99) countries. The average size of the shadow economy in OIC countries is 34.36% of gross domestic product (GDP) while it is 30.57% of GDP in non-OlC economies. The approach of exploring various definitions, historical development, types, Islamic viewpoint and the determining factors behind people's preference to join shadow economy is adopted in order to provide a deeper understanding of shadow economy. As far as our first objective Is concerned, we explored the determinants of shadow economy in OIC and non-OIC countries (1995-2015). Our results show that economic growth and institutional variables have negative association with shadow economy in both types of countries whereas government expenditure has a positive effect on shadow economy in both groups ...

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 study employs different types ofrelatively novel Markov regime switching GARCH (MRS-GARCH) models along with standard GARCH to identify better models to forecast the conditional volatility of Dow Jones Islamic Market World Index (DJIM). Several statistical and risk-management-based loss functions are employed to evaluate the out-of-sample volatility and Value-at-Risk (VaR) forecast from these models. Our empirical results show that although there is no single model - either of standard GARCH and MRS-GARCH type - is consistently outperforming the others if both the statistical and the risk-management loss functions are considered, overall different asymmetric Markov regime switching GARCH models, namely MRS-EGARCH andMRS-GJR-type models, perform better than any single regime GARCH specification.

This study determined the worth of the Halal food and beverage trade. We imposed the Poisson Pseudo-Maximum Likelihood after applying the gravity model (PPML). The economic size of trading partners, regional trade agreements, a shared border, and a shared language are determinants with a strong beneficial effect on commerce. On the other hand, the negative trade factors are the distance between trading parties, the exporting country's income, the exchange rate comparison, and landlocked trade. In the meantime, the income level of the importing nation and the colonial relationship appeared to have little impact on trade, as does OIC trade cooperation. Halal certification has a considerable beneficial influence. However, limitations on religious considerations (GRR and SHR) have a significant negative impact on trade.

The spotlight of this study is to examine whether environmental, social, and governance performance affects the financial performance of microfinance institutions (MFIs). The topic has been of much interest to researchers and policymakers due to increased awareness among stakeholders on the adverse social and environmental impacts of business actions. Using a dataset covering 5 years for 62 MFIs across 34 countries, we find that environmental and governance performance has no impact on the financial performance of MFIs. As for the social-financial performance nexus, our results reveal a positive relationship using the depth of outreach as proxy of social performance. However, when women empowerment is used as a proxy for social performance, evidence suggest presence of negative relationship. The study contributes to the literature by providing new evidence on the relationship between environmental, social, and governance and financial performance from microfinance industry. Our results are robust to a variety of econometric specifications and have significant policy implications for donors, investors, MFIs, and regulators.

This study investigates the impact of bank concentration and financial development on economic volatility for the Organization of Islamic Cooperation (OIC) member countries. Employing dynamic panel models, we find no evidence that bank concentration is significantly related to economic volatility when it is entered independently in the models. Meanwhile, financial development lowers economic volatility. Extending the models to include market structure - financial development interaction, we note that the impact of bank concentration on volatility depends on the level of financial development within OIC countries. More specifically, the volatility-increasing effect of bank concentration tends to be moderated by financial development. Accordingly, in the wake of banking sector consolidation in these countries, policymakers and regulators in OIC countries should focus on further developing their financial markets such that the negative consequences of resulting market concentration can be mitigated.

Despite the promising evidence of the corporate social and environmental performance-corporate financial performance relations across various business sectors, the findings from banking sector remain limited and inconclusive. This article examines the impact of access to finance and environmental financing on the financial performance of the banking sector globally. Based on cross-sectional linear regression and non-linear threshold regression of 713 banks from 75 countries over the period of 2013-2015, we find that access to finance has significantly positive effects on banks' financial performance in most of the estimation models controlling for both bank specific and macroeconomic variables. The positive impact on financial performance is channelled through loan growth (in both cases) and management quality (in the case of access to finance). We find that banks with total assets of lower than USD 2.07 billion experience significantly positive impact of access to finance on their ROE. Policy implications toward policy and regulatory development in the banking sector are discussed.

This study seeks to examine whether corporate environmental performance (CEP) and corporate social performance (CSP) affect stability of the banking industry. The topic is of much interest to researchers and policy makers considering the growing demand to integrate environmental and social practices into banking business model. Based on a panel dataset of 473 banks in 74 countries, this research finds that CEP is negatively related to bank stability as measured by non-performing loans (NPL). However, the impact is insignificant for small and large banks, as well as for banks in countries with low environmental scores. Furthermore, CSP does not appear to have a significant relationship with bank stability, but financial product safety, which is an aspect of CSP, does. The results are robust to a variety of econometric specifications and have significant policy implications for investors, bankers and regulators.

The slides highlight: 1) enhancing responsible business and sustainability practices; 2) enhancing positive impact while minimizing negative impact; 3) incorporating sustainability demands big data and robust research methodology.

In a risk transfer and shifting financial systems, an interest rate based debt contract is an "impossible contract," since, under the axioms of conventional economics, the borrower has an incentive not to repay the loan. Such impossible contract is made possible by creating a virtual world of certainty through mechanisms such as collateral requirements and an edifice of legal, administrative, policy incentive mechanisms that include positive and negative enforcements that protect the creditor. The society has to bear huge costs to make them possible. Risk sharing has the potential to enhance efficiency as each party to contracts has "skin-in-the-game", thus eliminating or minimizing the principal-agent problem. Participants in a contract of an economic undertaking can choose higher risk-higher return projects thus increase the efficiency and productivity of the system. It can also create a reciprocal and trusting environment that strengthens social cohesion, promotes social mobility and reduces income inequality without perverse incentive effects.

Using wavelet techniques (discrete and continuous), this paper is the first attempt to investigate the co-movement dynamics at different time scales or horizons of Islamic Dubai Financial Market (DFM-UAE) index returns with their counterpart regional Islamic indices returns such as GCC index, ASEAN index, Developing Countries index, Emerging Countries Index, and the Global Sukuk. Finally, we examine the impact of the LIBOR on the Islamic DFM-UAE return. Our first finding is that the two markets DFM_UAE, and (GCC and Saudi) are converging, in the long run, to the same level of risk and volatility with the Global Sukuk index. The wavelet analysis based on betas indicates a strong non-homogeneous correlation across scales and for different periods of time. Closer markets tend to suggest a contagion effect showing higher correlation and higher interdependence with a certain time delay. Evidence shows a flight to quality to the less risky Sukuk market mostly during the last financial crisis. The lead–lag analysis tends to indicate that the GCC leads DFM-UAE which leads Sukuk. Finally, this study sheds further light on the important leading impact of the overnight LIBOR on the returns of Islamic stock indices especially during the big changes or under shocks indicating policy implications for portfolio diversification for the international investors. The results are plausible and intuitive and have strong policy implications.