Who Moves the Malaysian Stock Market— the U.S. or Japan?: Empirical Evidence from the Pre-, During, and Post-1997 Asian Financial Crisis

This paper examines long run co-movements between Malaysian stock market and the two largest stock markets in the world: the U.S. and Japan. By employing time-series analysis, i.e., cointegration, variance decompositions, and impulse response functions, the paper seeks to investigate which market actually leads the Malaysian stock market before, during, and after the 1997 Asian financial crisis periods. The results indicate that there is a co-movement of these markets only in the post crisis period. The Japanese stock market is found to significantly move the Malaysian stock market compared to U.S. stock market for the post-crisis period. At the same time, there seems to be a growing proportion of bilateral trade between Malaysia and Japan during the mentioned period. This finding seems to be consistent with the view that the stronger the bilateral trade ties between two countries, the higher the degree of co-movements (Masih and Masih 1999; Bracker et al. 1999; Pretorius 2002; Ibrahim 2003; Kearney and Lucey 2004). Our finding implies that the opportunities of gaining abnormal profits through investment diversification during the post-crisis period in the Malaysian and Japanese stock markets are diminishing as the markets move towards a greater integration. This further implies that any development in the Japanese economy has to be taken into consideration by the Malaysian government in designing policies pertaining to Malaysian stock market

Financial Literacy and Behavioral Finance: Conceptual Foundations and Research Issues

financial literacy, defined as knowledge and numeracy, Investors decision-making Behaviour defined as how the investors judge, predict, analyses and review the procedures for decision making, which includes investment psychology, information gathering, defining and understanding, research and analysis. In Investors Decision-making Behaviour, the financial literacy plays a crucial effect. Misunderstood personal characteristics within Investors Decision-making Behaviour may generate unrealistic or inaccurate outcomes. Unfortunately, the effect of personal context is nearly ignored in c literature. this paper argues on the interaction between the influence of financial literacy, so as to explain Investors Decision-making Behaviour. This proposition could improve understanding the Investors Decision-making Behaviour and help to resolve inconsistency of findings in the literature. Keywords: financial literacy; Behavioural Finance; Investors decision-making Behaviour; financial literacy; Palestine stock market

The Conceptual Perspective of the Subjective Norms Determinant of the Investors Decision-Making Behavior

Investors decision-making Behaviour defined as how the investors judge, predict, analyses and review the procedures for decision making, which includes investment psychology, information gathering, defining and understanding, research and analysis. In Investors Decision-making Behaviour, the Subjective Norms plays a crucial effect. Misunderstood personal characteristics within Investors Decision-making Behaviour may generate unrealistic or inaccurate outcomes. Unfortunately, the effect of personal context is nearly ignored in c literature. this paper argues on the interaction between the influence of Subjective Norms, so as to explain Investors Decision-making Behaviour. This proposition could improve understanding the Investors Decision-making Behaviour and help to resolve inconsistency of findings in the literature.Keywords: Investors decision-making Behaviour; Subjective Norms; Palestine stock market

Promoting housing affordability in Malaysia: can Islamic finance play a role?

This study seeks to investigate the relationship between affordability of home ownership in Malaysia and the role played by Islamic banks in promoting affordable financing.By establishing the link between affordability (measured by median house price/gross domestic product per capita) and total home financing by Islamic banks, the study seeks to decipher the issues of home ownership affordability.At the same time, it attempts to shed some light on the role of Islamic finance in providing a syariah based and syariah compliant alternative of a fair-priced home loan in promoting home ownership affordability in Malaysia. The study employs auto regressive distributed lag model on quarterly data from 2007 until 2014 to investigate the link between affordability and selected banking variables such as total home financing by Islamic banks and overnight policy rate.Data were extracted from the NationalV Property Information Centre and Bank Negara Malaysia Monthly Statistical Bulletin.Our findings suggest that Islamic banking plays a bigger role in promoting affordability by offering a fair and sustainable financing. The study highlights that Islamic banking to a certain extent has managed to live up to its ideals in achieving the maqasid al-shariah

Long-run relationship between Islamic stocks returns and macroeconomic variables: An application of the autoregressive distributed lag model

Purpose – The purpose of this paper is to explore the extent to which macroeconomic variables affect the Islamic stock market behavior in Malaysia in the post 1997 financial crisis period. Design/methodology/approach – The paper employs the latest estimation technique of autoregressive distributed lag (ARDL) model approach to cointegration. Findings – The results suggest that real effective exchange rate, money supply M3, treasury bill rate (TBR) and federal fund rate (FFR) seem to be suitable targets for the government to focus on, in order to stabilize the Islamic stock market and to encourage more capital flows into the market. As for the interest rates and stock returns relationship, the paper finds that when interest rates rise either domestically (TBR) or internationally (FFR), the Muslim investors will buy more Shari’ah compliant stocks; thereby escalating the Islamic stock prices. Research limitations/implications – The results of this study are limited to the post 1997 financial crisis period until the beginning of the year 2006 for a small open economy, Malaysia. Practical implications – The paper reveals that both changes in the local monetary policy variables and in the US monetary policy as measured by the changes in the FFR have a significant direct impact on the Islamic stock market behavior in Malaysia. Originality/value – The paper adopts the latest time series econometrics technique to test for cointegration, ARDL. And it is among the earliest attempts to investigate the long-run effects of the macroeconomic variables changes either domestically or internationally on the Islamic stock market

Rental Rate as An Alternative Pricing for Islamic home financing: An empirical investigation on the UK Market

Purpose This paper aims to contribute to the banking and housing market literature by proposing an alternative measure of rate of return for Islamic banks that is based on the rental rate of the property. This alternative Islamic mortgage pricing mechanism could be adopted by Islamic banks as a replacement for mortgage rates if it is found to be independent from any form of interest rates as required by Islamic law. Design/methodology/approach By investigating the short run and long run dynamics between rental price index (RPI) and the proposed Islamic Rental Rate (RR-I) and, three selected macroeconomic indicators in the UK via autoregressive distributed lag model, the authors examine the link between RPI, RR-I and the real economy. Findings The findings provide evidence that while RPI in the UK is significantly related to three leading macroeconomic variables, namely, gross domestic product (GDP), real effective exchange rate and interest rates measures, while RR-I is only impacted by changes in GDP. More importantly, the authors show that there is no short or long run dynamics between the rental rate and any form of interest rates. Research limitations/implications This paper did not attempt to investigate the impact of the physical attributes of the rental property to formalize the model describing the relationship between RPI and RR-I. Also, other macroeconomic factors like household income growth, risk, house value growth rate and taxation could be included in future models. Practical implications As Rental Rate is not linked to the macroeconomic determinants, it is therefore more stable, resilient and sustainable and, at the same time, making the financing less risky for both parties, as they are less susceptible to economic vulnerabilities. Social implications Some calculations incorporating the proposed RR-I can also be extended to the pricing of products based on other contracts such as Tawarruq, Bai Bithaman Ajil or even Murabahah for a fairer and just pricing to both the banks and customers. Originality/value The results suggest that Islamic banks should consider incorporating the proposed rental rate (RR-I) when pricing their home financing products, as this will lead to less dependence on interest rates for benchmarking. In addition, using the proposed rental rate (RR-I) reduces the exposure to the subjective evaluation by property valuators and speculative macroeconomic elements. </jats:sec

Profitability and Cost Efficiency of Islamic Banks: A Panel Analysis of Some Selected Countries

This study aims to investigate the significant elements that predict profitability behavior of Islamic banks within the composition of cost efficiency. It is not clear whether Islamic banks can simultaneously achieve higher profitability with cost efficiency.  The result of the first model in this study found all predicting variables are significantly explaining profitability after robust standard errors of fixed effect model. Also, the interaction between cost efficiency and bank activities within each country's macroeconomic environment presents an attractive outcome of expense preference behavior. The paper advocated for prioritization of cost efficiency which has the tendencies of attaining both utilization of available resources and higher returns to satisfy all the stakeholders.  Keywords: Profitability; Efficient behavior; Islamic banking, JEL Classifications: D22, G21, L2

Profitability and cost efficiency of Islamic banks: a panel analysis of some selected countries

This study aims to investigate the significant elements that predict profitability behavior of Islamic banks within the composition of cost efficiency.It is not clear whether Islamic banks can simultaneously achieve higher profitability with cost efficiency.The result of the first model in this study found all predicting variables are significantly explaining profitability after robust standard errors of fixed effect model. Also, the interaction between cost efficiency and bank activities within each country’s macroeconomic environment presents an attractive outcome of expense preference behavior.The paper advocated for prioritization of cost efficiency which has the tendencies of attaining both utilization of available resources and higher returns to satisfy all the stakeholders

Financing patterns, debt maturity and growth: Evidence from East Asia and the GCC Countries

Abstract The primary goal of this paper is to quantify the impact of financing constraints on corporate growth. For this, we use a sample of 1588 firms from the GCC and East Asia during the period 1999-2007. Specifically, we examine the relationships between growth and (1) the availability of internal finance, and (2) the debt maturity of external financing using an accelerator investment model extended to account for the extent to which companies use internal finance, long term debt and short term debt to finance their acquisition of long term assets. A company is constrained not only because it cannot access credit but also if it cannot access long term finance. This paper therefore includes the maturity of the debt as an explicit variable that impacts corporate long term investment. Our evidence supports earlier findings that because of asymmetric information and other market imperfections, small companies face more financing constraints than large companies, and have difficulties accessing long term finance. Our results als

Issues on Interbank Commodity Murabaha (CM) for liquidity management in Malaysia / Mohamad Zabidi Ahmad, Rosylin Mohd Yusof and Ahmad Rizal Mazlan

Purpose: The objective of this research is to highlight issues and review the Interbank Commodity Murabahah (CM) practice as a tool of liquidity requirement from both the Shariah and industry's operational perspectives. Accordingly, this study seeks to analyze the structure and mechanism of CM as an instrument to meet the liquidity need of Islamic financial institutions and provides an opportunity for investments. In doing so, the paper seeks to review issues related to Shariah and operations in Islamic banking. Design/methodology/approach: By interviewing with Treasurers, Shariah Scholars and funding dealers of Islamic banks in Malaysia, the study evaluates reassessment on CM practices and operational issues concerning risk and compliance. The study focuses on the Islamic Treasury Division of Islamic banks in Malaysia. Findings: The findings of the study suggest that the two most significant issues in Islamic liquidity management of Islamic banks in Malaysia are i) resembling interest ii) nature of trade-ability iii) structure of CM iv) the timing the transaction to be completed and v) the real brokerage cost involved in adopting the CM transactions. Research limitations/implications: The research proposes risk mitigation and enhanced Shariah compliance frameworks such as straight-through processing (STP) and commodity broker's standard guideline for Islamic banks to adopt CM practices. Practical implications: This study provides direction and guidance to the Islamic Commercial Banks, Commodity Brokers and regulator (BNM) involved in the banking system to reflect upon the importance to understand the issues and limitation of CM. By highlighting the importance of efficiency in terms of time and cost-saving together with Shariah issues, Islamic banks can design policies to enhance efficiency in order to either decide to maintain the adoption of CMP or to consider the proposed alternative. Social implications: Understanding the Shariah compliance and operational issues will enhance the integrity of Islamic banks, which is consistent with the Key Economic Growth Area of making Malaysia as International Islamic Financial Hub 2.0