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.

In the Islamic finance capital market spectrum, the potential of mudharabah and musyarakah sukuk is hampered with criticism by Shariah scholars. Among the criticisms include the presence of uncertainties surrounding sukuk returns, the risk of losses that the rabbul-mal (investors) have to bear, and the need to mitigate agency costs (for mudharabah contracts). This have made it a deterrent for both issuers and investors in seeing the instrument as a viable alternative to debt-based sukuk structures. This study proposes an improvement to musyarakah sukuk. It begins with a qualitative examination of the structure of corporate mudharabah and musyarakah sukuk issued in Malaysia. The examination finds risk-sharing sukuk structures in Malaysia contain features that supresses the risk sharing element between the sukuk investors and issuer. Findings from qualitative analysis is supported by generalized method of moments (GMM) and threshold analysis. Based on the sample of 86 corporate mudharabah and musyarakah sukuk issuances, the introduction of partnership sukuk in the firm's capital structure is found to be insignificant in affecting both firm risk and firm performance. The present partnership sukuk structure is then modified to incorporate variable returns (coupon payments) proportionate to the firm's net profits and variable principal repayment proportionate to the firm's total assets value. This study finds that when sukuk returns are made variable, sukuk investors are able to earn better/ equitable returns compared what they are earning in the current sukuk structure.

The study of currency exposure in the context of small open economies such as the ASEAN-4 region is important in view of the higher degree of openness of the economies and the progressive growth of the Islamic finance industry. This study examined the presence of currency exposure in a sample of 405 listed non-financial corporations from Indonesia, Malaysia, Singapore and Thailand over a duration of 18 years from 1993 to 2010. This study is different from previous studies as it combines two assessment methods, i.e., the cash flow (CF) and stock returns (SR) approaches. Furthermore, this study covers two major events of the financial crises ...

The last decade has witnessed a rapid expansion of Islamic financial instruments with a notable proliferation of Islamic investment certificates called sukuk. In spite of the expansion, research to appraise their growth implications remains limited. This paper investigated the structural differences within sukuk and conventional and their implications on investor return reactions. It also looked at the investors' different decision making time horizon dimensions in response to the respective debt security's announcement. Our sample consisted of 158 conventional bonds and 129 sukuk issuers between 2000 and 2013. Event-study methodology and wavelet analysis were used resulting in three major findings. Firstly, market investors perceived sukuk and conventional bonds as different financial instruments. Variations in investor reactions persisted when each sub-category of sukuk and conventional bond were examined separately. Lastly, firm value and shareholder wealth were affected in different ways upon the issuance announcement of of a specific sukuk or conventional bond. Specifically, the equity-like features within convertible bonds and partnership-based sukuk negated institutional investors' wealth, but were due to different 'dilution' arguments. Sukuk created unique wealth effects for corporate issuers, day traders and institutional investors in comparison with conventional bonds.

This thesis investigates the determinants and impact of short-term capital flow in the 33 OIC countries from 2000 to 2018 and bridges the understanding between both literature strands. The short-term capital flows are divided into gross inflows, outflows, and extreme episodes, analyzed under the push-pull framework. The empirical approaches for exploring the determinants of short-term capital flows consist of panel static and dynamic LSDV and probit models. Additional analysis controlling for Lucas's paradox conditions provides more insights and robustness. The study then analyzes their impact on economic growth (GDP), conventional, and Islamic stock markets. The study employs time-series models (ARDL and NADRL) to test the impact of short-term capital flows on economic growth and stock markets. The models establish the long-term dynamic relationship and synergize with prior findings on the heterogeneous responses of each country. The findings suggest that short-term capital flows into the OIC countries are tied to the global commodity and domestic consumption effects, indicating the dominance effect from push factors and the global economic cycle. Regional contagion act as a transmission mechanism of episodic flows across the OIC. There is also clear evidence of each country's heterogeneous determinants and impact of short-term capital flows, emphasizing the important roles of pull factors and the level of capital account openness. The impact of STC flows on stock markets confirms that they are susceptible to global economies and uncertainty, especially in conventional stock markets. The findings for Islamic stock markets support the "decoupling hypothesis" since they are less affected by global shocks from higher risks and uncertainty. The overall findings imply the importance of capital liberalization, institutional quality, and the optimal sequence of capital liberalization.

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 paper investigates the effects of religious screening on payout behavior of US firms. Shariah compliant (SC) indices serve as suitable sample as they are emerging as alternative investment class in the last two decades. Through an analysis of a sample of US firms belonging to Dow Jones proprietary database for the period 2006-2018, this study provides evidence that SC firms are more prone to make total payout, cash dividends and repurchases. We use panel logistic regressions with industry and year fixed effects. The findings reveal that the drivers of higher propensity of total payout are higher profitability, higher retained earnings, lower debt capital structure and lower asset growth. The factors that contribute to likelihood of paying higher cash dividends are higher profitability, lower governance levels and lower market/book assets ratio. Moreover, better governance, lower asset growth and lower equity/assets increase the propensity of SC firms to make higher repurchases. These findings are important contribution to the Islamic corporate finance and dividend policy literature.

Capital structure serves as an important device for mitigation of agency conflicts and, although firms combine debt and cash dividends to address the agency conflicts, debt is preferred as a bonding device by many managers due to its lower cost as compared to equity (John, Knyazeva & Knyazeva, 2015). However, shariah-compliant firms (SCF) cannot use this device due to prohibition of interest-bearing loans in Islam. In this scenario, the dividend payout policy becomes a highly important tool of corporate governance for shariah-compliant investors. Moreover, the managers of these firms cannot maintain stable dividends by issuing bonds and, therefore, the dividend policy of such firms would be different. This chapter highlights the dividend payout behaviour of SCF by comparing them to conventional firms.

This study examines the impact of ethical and Shariah screening on idiosyncratic risk, performance and dividend policy decisions for US market for the period 2006-2015. A unique dataset is utilized to construct representative portfolios of Socially Responsible Investing (SRI), Shariah compliant investment and Market (proxy). The existing literature suggests that constraints on stock selection imposed by screening may limit investment universe and make faith based portfolios sub-optimal. Therefore, the investors who want to follow their religious or social beliefs need to incur cost of their values. Our results reveal that Shariah compliant investors are slightly disadvantaged in terms of idiosyncratic risk. However, they pay the price of holding religious beliefs by accepting lower risk-return trade off while SRI investors bear no such cost. Moreover, that there is not much variation in dividend policy of the faith based portfolios as compared to market proxy portfolio and good corporate governance promotes dividend payment for the sample portfolios. Furthermore, the firms with low idiosyncratic risk, low financial constraints, high book-to-market-assets ratio, high size and earned equity tend to pay higher dividends. Finally, it had been found that Shariah firms, unlike the market and SRI firms who prefer retaining excess cash, utilize high free cash flows to pay dividends to reduce agency conflicts.

This paper examines the long run relationship between Vietnam stock market and her ASEAN partners like Malaysia, Singapore, Thailand, Indonesia and the Philippines. The paper uses the weekly data from July 2006 till February 2014 and run through an analyzed using time series techniques in order to test for cointegration of Vietnam stock market with ASEAN members. Eagle-Granger, Johansen-Jeselius (JJ), and Vector Error Correction Model (VECM) methods are used in analyzing data. The results obtained from JJ test find at most one cointegration among ASEAN members ...

This paper investigates the target capital structure adjustment by Malaysia and Singapore, with a view to determine whether they exhibit similar behaviour. Firms may temporarily diverge from their target capital structure but seek to return optimal capital structure when indications of crisis are seen as well as in the aftermath of a crisis. Firms which are not on their optimum capital structure face high detrimental costs for being in such a position ...

The purpose of this paper is to examine the extent of risk shifting behavior in bonds and sukuk. The examination is significant, as economists and scholars identify risk shifting as the primary cause of the global financial crisis. Yet, the dangers of this debt-financing feature are largely ignored - one needs to only witness the record growth of global debt even after the global financial crisis. To identify the signs of risk shifting existence in the corporations, this paper compares each corporation's operating risk before and after issuing debt. Operating risk or risk of a firm's activities is measured using the volatility of the operating earnings or coefficient variation of earning before interest, tax, depreciation and amortization (EBITDA). Using EBITDA as the variable offers one distinct advantage to using asset volatility as previous research has - EBITDA can be extracted directly from firms' accounting data and is not model-specific.

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.

This paper examines the financial performance of ethical funds in different regions and concludes that there is a cost attached to ethical investing. An analysis of 964 mutual funds comprising of Socially responsible funds (SRFs) and the Shariah-compliant equity funds (SCFs) suggests that: a) except for global funds, both types of funds underperform in the market, b) both types of funds are preferred for investment in growth and momentum stocks, c) SRFs are preferred for small capitalized stocks whereas SCFs do not follow any specific style or investment strategy, d) unlike SRFs, SCFs do not provide a safe haven for investors during crises. These findings are probably due to the lack of diversification opportunities and poor managerial skills. The results are robust to various asset pricing models and macroeconomic factors.

Due to the fact that Islamic financial securities may consist of ribawi (cash and debt) underlying assets, it is crucially important to discern whether or not the trading of these securities is subject to the Shari'ah rules for bay' al-sarf and bay' al-dayn. If they do not then what criterion is pertinent to their secondary trading; and on what jurisprudential basis? In answer to that question, the current scholarly views and suggested Shari'ah criteria for tradability of Islamic securities are not only diverse, but also at times incongruous with one another. Based on the qualitative approach of text analysis and semi-structured-interviews, this study critically analyse this issue ...

The motivation to examine flow-performance relationship of Shariah compliant funds (SCFs) and Socially responsible funds (SRFs) is that investors investing in these two funds have certain non-financial motives such as religious, ethical, environmental etc. Renneboog et al., (2011) explained that more the investor is averse to certain non-ethical or non-religious corporate behavior the more satisfaction he/she gets by investing in the funds that are in line with his/her ethical or religious position. The above conjecture that the SRF and SCF investors chose funds based on a dual objective of socially responsible/religious investing and financial gains is in line with the way generally these funds advertise their funds emphasizing the importance of socially responsible/religious investing.

The issue of liquidity and under development of OIC stock markets has caused problems to companies in those countries that seek higher equity capital. Many institutions such as Islamic Development Bank (IDB), International Organization of Securities Commissions (IOSCO) and OIC agree that the introduction of the Islamic Depositary Receipts (IDRs) could aid these companies in enhancing their value. As this instrument is yet to be introduced, this study aims to examine the financial implications of cross-listing via the existing Depositary Receipts (DRs). This is done by studying the impact of companies that have resorted to using American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) ...

The study investigates the impact of the global financial shocks on the correlations between the stock market and interest rate on the one hand and that between conventional and Islamic stocks on the other. The countries investigated are Malaysia, Indonesia, the U.S., Japan, the U.K., Kuwait, Saudi Arabia, Qatar with the sample period from December 2004 to December 2012. Changes in correlations for different time scales or investment horizons levels with wavelet analysis were tested. It was found that correlations among Islamic and conventional stock markets in non-shock periods tend to be ...

Herding behaviour refers to an alignment of thoughts or behaviours of individuals in a group. In the case of capital market, it has been studied by several researchers such as Chang et al. (2000) and (Gavriilidis et al., 2015). Being a multicultural and multiracial country, and one of the main markets for the Islamic capital market, Malaysia provides a conducive landscape for the study of herding behaviour. The main motive for conducting this study is to investigate the presence of herding behaviour in Malaysia's religious holiday period, it's characteristic in reference to all securities and shariah-compliant securities ...