Experience of Equity-based Islamic Shares in Pakistan

Modarabah and leasing stocks, which are listed on the Karachi Stock Exchange (KSE) since 1985, operate on the Islamic concept of financing under a well defined contractual framework supervised by the State Bank of Pakistan (SBP). The Islamic stocks had mushroom growth during the first sub-period of reforms1 and were exempted from various taxes during the initial 3 years of their operation. For investors these shares were a very attractive opportunity to build a quality portfolio and earn high returns. Due to bureaucratic and non-professional approach of banks in Pakistan these firms became popular alternatives lenders to medium and small sized business borrowers. The turn around time and efficient handling of the proposals made them more attractive. Practically all these Islamic firms in Pakistan are undertaking financing activities on a mark-up basis, rather than profit and loss sharing. Under the mark-up system the return is predetermined and their risks are minimised. These Islamic stocks are operated similar to other firms that do not work on Islamic principles. In the case of Modarabah, the predetermined rate of return and even the agreed ratio of profit shares when calculated, the market rate of interest with other characteristics of party in contract are also taken into consideration [Khan (1987, 1989); Saeed (1996)]. The flurry of interest in floating Modarabahs was in part explained by the higher return to investors, and that when the provisions permitting tax exemptions

Analysing the Terms of Trade Effect for Pakistan

The study investigates the impact of changes in terms of trade in Pakistan on its income and consumption potentials, by employing two measures of terms of trade, namely, barter terms of trade and income terms of trade. The study examines Pakistans terms of trade behaviour using time series data from 1990- 2008, and works out the losses the country had to bear owing to deterioration in its terms of trade. Paper finds that worsening of terms of trade has a negative impact on economic growth of Pakistan, as it ultimately reduces gross domestic product.Terms of Trade, Commodity Terms of Trade, Income Terms of Trade, GDP, Pakistan

The Systematic Risk and Leverage Effect in the Corporate Sector of Pakistan

Poor corporate financing policies, non-competitive role of institutional development, a tendency towards the underpricing of initial offering resulted in high levered stocks in Karachi stock market (KSE). The KSE is termed as high risk high return emerging market where investors seek high risk premium Nishat (1999). The leverage is the most important factor which determines the firms risk premium [Zimmer (1990)]. Hamada (1969) and Bowman (1979) have demonstrated the theoretical relationship between leverage and systematic risk. Systematic risk of the leverage firm is equal to the without leverage systematic risk of the firm times one plus the leverage ratio (debt equity). Bowman (1979) established that systematic risk is directly related to leverage and the accounting beta (covariability of a firms’ accounting earnings with the accounting earnings of the market portfolio). One explanation of time-varying stock volatility is that leverage changes as the relative price of stocks and bonds change. Schwert (1989) demonstrated how a change in the leverage of the firm causes a change in the volatility of stock returns. Haugen and Wichern (1975) analysed the relationship between leverage and relative stability of stock value based on actuarial science1 and found that the duration of the debt is an important attribute in assessing the effect of leverage on stock volatility. If the leverage is persistent, or changing over time due to the issuance of additional debt, or if the firms are trying to return back the debt, this will change the risk of holding common stock.

Industry Risk Premia in Pakistan

Industry characteristics is one of the main factors that determines a firm’s business risk [Kale, Hakansson, and Platt (1991)], and a single information can affect more than one security price change, perhaps even the whole market. Lessard (1974, 1976) explains that industry plays an important role in explaining national market volatility. One of the reasons for stock index behaviour are attributed to industrial composition as some industries are internally more volatile than the other [Grinold, Rudd, and Stefek (1989)]. Moreover, some sectors show a high degree of global integration, for example, the finance sector [Roll (1992)]. Similarly, consumer goods, fuel and energy, and transportation sectors are extremely important for any country index. King (1966) suggests that if a significant difference in industry risk premia is observed, then we need to isolate the market risk premia and industry risk premia. He observed that the industry components of variance showed much less change from sub-period to sub-period. Significant differential impact of regulatory policy on cost of capital across various sectors was also observed [Isimbabi (1994); Prager (1989)]. The industry specific policies in Pakistan are observed either as a part of the reform package during 1988 and early 1990s, or as an additional policy measure to further boost the private investments in priority sectors. These policies included incentives for foreign investment through permission for repatriation of profits, the easing of investment and banking sector regulations and easy access to loans and tax exemptions on priority sectors like power, exports and agriculture based industries. In addition, the government encouraged equity participation to avoid instability through growing leverage.

Macroeconomic Factors and Pakistani Equity Market

This paper analyzes long-term equilibrium relationships between a group of macroeconomic variables and the Karachi Stock Exchange Index. The macroeconomic variables are represented by the industrial production index, the consumer price index, M1, and the value of an investment earning the money market rate. We employ a vector error correction model to explore such relationships during 1973:1 to 2004:4. We found that these five variables are cointegrated and two long-term equilibrium relationships exist among these variables. Our results indicated a "causal" relationship between the stock market and the economy. Analysis of our results indicates that industrial production is the largest positive determinant of Pakistani stock prices, while inflation is the largest negative determinant of stock prices in Pakistan. We found that while macroeconomic variables Granger-caused stock price movements, the reverse causality was observed in case of industrial production and stock prices. Furthermore, we found that statistically significant lag lengths between fluctuations in the stock market and changes in the real economy are relatively short.Financial Market, Pakistan, Stock Market

Volatility of Exchange Rate and Export Growth in Pakistan: The Structure and Interdependence in Regional Markets

The study empirically investigates the effect of exchange rate volatility on exports growth between Pakistan and leading trade partners. The countries are selected to determine the bilateral relationship between Pakistan and the other countries under various regional economic blocks such as SAARC, ASEAN, European, and Asia-Pacific regions. Cointegration and Error Correction techniques are used to establish the empirical relationship between exchange rate volatility and exports growth, using quarterly data from 1991:3 to 2004:2. The results indicate that the volatility of exchange rate has negative and significant effects both in the long run and short run with major trade partners, namely, UK and US. A similar pattern was observed in case of Australia, Bangladesh, and Singapore, where the volume of trade with Pakistan is comparatively consistent and less volatile. The relationship between exports growth and exchange rate volatility for India and Pakistan is observed only in the long-run perspective. However, of countries like New Zealand and Malaysia, no empirical relationship is observed between export growth and exchange rate volatility.Export, Exchange Rate, Pakistan

The Determinants of Foreign Direct Investment in Pakistan

The paper empirically identifies the determinants of growth in foreign direct investment (FDI) in Pakistan over the period 1961–2003. Our main interest is to study how different variables or indicators reflecting the trade, fiscal, and financial sector liberalisation attract FDI in Pakistan. The study uses the cointegration and error-correction techniques to identify the variables in explaining the FDI in Pakistan. The study considers the tariff rate, exchange rate, tax rate, credit to private sector, and index of general share price variables to see if they may explain the inflow of foreign direct investment. Also included are wages and per capita GDP to test for the relative demand for labour and market size hypotheses. All variables indicate correct signs and are statistically significant except for wage rate and share price index. The study clearly emphasises the role of these policy variables in attracting FDI and determining its growth in both short- and long-run in Pakistan, and also indicates a positive and significant impact of reforms on FDI in Pakistan.Foreign Investment, Pakistan

The Twin Deficits Phenomenon: Evidence from Pakistan

Like most developing countries a steady budget deficit in Pakistan is the primary cause of all major ills of the economy. It has varied between 5.4 to 8.7 percent during last two decades. On the other hand the current account deficit varied between 2.7 to 7.2 percent during the same period. The variations in fiscal policy can lead to predictable developments in an open economy’s performance on current account, remains a controversial issue. An important aspect of this issue concerns what is termed as twin deficit analysis, according to which fiscal deficits and current account balances are very closely related so that reductions in the former are both necessary and sufficient to obtain improved performance in the later. Theoretical work on the relationship that exist between variations in fiscal policy and the current account balance has been based upon two types of models. These models are constructed from postulated behavioural relationships that purport to describe how the economy works in aggregate without explaining the behaviour of agents who make up the economy.

Key Fundamental Factors and Long-run Price Changes in an Emerging Market-A Case Study of Karachi Stock Exchange (KSE)

Share prices are the most important indicator readily available to the investors for their decision to invest or not in a particular share. Theories suggest that share price changes are associated with changes in fundamental variables which are relevant for share valuation like payout ratio, dividend yield, capital structure, earnings size of the firm and its growth, [Wilcox (1984); Rappoport (1986); Downs (1991)]. Linter (1956) linked dividend changes to earnings while Shapiro valuation model (1962) showed dividend streams discounted by the difference in discount rate and growth in dividend should be equal to share price. This predicts direct relation between pay out ratio and the price-earning multiple. Conversely it means that there is an inverse relation between pay out ratio and share price changes. Several eventbased studies established direct relation between share price changes and either earnings or dividend changes [Ball and Brown (1968); Baskin (1989)]. Sharpe (1964) and Hamada (1972) suggested direct relation between share price changes and capital structure. Beaver, Kettler and Sholes (1970) showed that firms appear to pay less of their earnings if they have higher earning volatility. This suggests payout ratio as relevant factor for share price changes. Investigations of share price changes appear to yield evidence that changes in fundamental variable(s) should jointly bring about changes in share prices both in developed and emerging markets. However, the actual fundamental factors found to be relevant may vary from market to market. For example, changes in asset growth of firms are significant in the case of Japanese shares while earnings appear to be universally a relevant factor [Ariff, et al. (1994)]. However, it is widely agreed that a set of fundamental variables as suggested by individual theories is no doubt relevant as possible factors affecting share price changes in the short and the long-run.

SWIFT: Super-fast and Robust Privacy-Preserving Machine Learning

Performing machine learning (ML) computation on private data while maintaining data privacy, aka Privacy-preserving Machine Learning~(PPML), is an emergent field of research. Recently, PPML has seen a visible shift towards the adoption of the Secure Outsourced Computation~(SOC) paradigm due to the heavy computation that it entails. In the SOC paradigm, computation is outsourced to a set of powerful and specially equipped servers that provide service on a pay-per-use basis. In this work, we propose SWIFT, a robust PPML framework for a range of ML algorithms in SOC setting, that guarantees output delivery to the users irrespective of any adversarial behaviour. Robustness, a highly desirable feature, evokes user participation without the fear of denial of service. At the heart of our framework lies a highly-efficient, maliciously-secure, three-party computation (3PC) over rings that provides guaranteed output delivery (GOD) in the honest-majority setting. To the best of our knowledge, SWIFT is the first robust and efficient PPML framework in the 3PC setting. SWIFT is as fast as (and is strictly better in some cases than) the best-known 3PC framework BLAZE (Patra et al. NDSS'20), which only achieves fairness. We extend our 3PC framework for four parties (4PC). In this regime, SWIFT is as fast as the best known fair 4PC framework Trident (Chaudhari et al. NDSS'20) and twice faster than the best-known robust 4PC framework FLASH (Byali et al. PETS'20). We demonstrate our framework's practical relevance by benchmarking popular ML algorithms such as Logistic Regression and deep Neural Networks such as VGG16 and LeNet, both over a 64-bit ring in a WAN setting. For deep NN, our results testify to our claims that we provide improved security guarantee while incurring no additional overhead for 3PC and obtaining 2x improvement for 4PC.Comment: This article is the full and extended version of an article to appear in USENIX Security 202