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Some preliminary evidence of price discovery in Islamic banks

Narayan, Paresh Kumar; Sharma, Susan Sunila; Thuraisamy, Kannan Sivananthan and Westerlund, Joakim LU (2017) In Pacific Basin Finance Journal
Abstract

In this paper using time-series data for a large number of Islamic bank stocks belonging to eight Islamic countries we test for evidence of price discovery. We find that in each of the eight countries there appears a bank that dominates the price discovery process. We then utilize this information on price discovery to form a portfolio of price discovery dominating bank stocks and compare its performance with portfolios of banks characterized by country and volatility. We show that buying a portfolio of price discovery dominant banks and selling most of the country-specific and volatility portfolios allow an investor to maximise profits or minimise loss. Our results are (a) robust to non-Islamic banks and to a larger sample of combined... (More)

In this paper using time-series data for a large number of Islamic bank stocks belonging to eight Islamic countries we test for evidence of price discovery. We find that in each of the eight countries there appears a bank that dominates the price discovery process. We then utilize this information on price discovery to form a portfolio of price discovery dominating bank stocks and compare its performance with portfolios of banks characterized by country and volatility. We show that buying a portfolio of price discovery dominant banks and selling most of the country-specific and volatility portfolios allow an investor to maximise profits or minimise loss. Our results are (a) robust to non-Islamic banks and to a larger sample of combined Islamic and non-Islamic banks, and (b) suggest that economic significance of price discovery is stronger for non-Islamic banks.

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author
organization
publishing date
type
Contribution to journal
publication status
epub
subject
keywords
Bank stocks, Islamic countries, Portfolio, Price discovery, Profits
in
Pacific Basin Finance Journal
publisher
Elsevier
external identifiers
  • scopus:85039707512
ISSN
0927-538X
DOI
10.1016/j.pacfin.2017.12.007
language
English
LU publication?
yes
id
3ad50f3e-6017-4781-b67c-736344e15651
date added to LUP
2018-01-10 09:38:22
date last changed
2018-12-09 04:36:34
@article{3ad50f3e-6017-4781-b67c-736344e15651,
  abstract     = {<p>In this paper using time-series data for a large number of Islamic bank stocks belonging to eight Islamic countries we test for evidence of price discovery. We find that in each of the eight countries there appears a bank that dominates the price discovery process. We then utilize this information on price discovery to form a portfolio of price discovery dominating bank stocks and compare its performance with portfolios of banks characterized by country and volatility. We show that buying a portfolio of price discovery dominant banks and selling most of the country-specific and volatility portfolios allow an investor to maximise profits or minimise loss. Our results are (a) robust to non-Islamic banks and to a larger sample of combined Islamic and non-Islamic banks, and (b) suggest that economic significance of price discovery is stronger for non-Islamic banks.</p>},
  author       = {Narayan, Paresh Kumar and Sharma, Susan Sunila and Thuraisamy, Kannan Sivananthan and Westerlund, Joakim},
  issn         = {0927-538X},
  keyword      = {Bank stocks,Islamic countries,Portfolio,Price discovery,Profits},
  language     = {eng},
  month        = {12},
  publisher    = {Elsevier},
  series       = {Pacific Basin Finance Journal},
  title        = {Some preliminary evidence of price discovery in Islamic banks},
  url          = {http://dx.doi.org/10.1016/j.pacfin.2017.12.007},
  year         = {2017},
}