Sanctuary in the Midst of Crisis? A Look into Shariah Indices using Multivariate GARCH DCC

Islamic Finance has evolved over the past few decades, and stands at over a trilliondollars today. At the foundations of Islamic finance lay the concept of risk sharing, and the purest forms of it in the modern day finance is equity investments. The evidence of Islamic investors pursing equity investments in reality is thin. Multitude of reasons are attributed to this low participation, mainly revolving around lack of empirical proof of Islamic investments being a reliable and steady return alternative. This study is an attempt to study the volatilities and correlations with the conventional global equity indices utilizing Multivariate GARCH Dynamic Conditional Correlations (MGARCH DCC) method. The findings provide an interesting angleto our study, where there is a significant downwards trend in the correlations during the crisis era. This provides substance to the argument that Islamic investors would experience lesser downside in economic crisis. This study further dwells into the linkage of Islamic indices with global financial indices to study if financial sector exclusion from Islamic indices benefits theinvestors. The findings are positive, with lower correlations and that to reducing in the recent global crisis. Islamic finances core philosophy is equity based investments and this study is a humble attempt to empirically substantiate its benefits

UNDERSTANDING ASIAN EMERGING STOCK MARKETS

We use a three-step process employing multifractal detrended fluctuation analysis tostudy time-varying changes in the volatility and efficiency of Asian emerging equitymarkets. Our findings suggest that, in emerging markets, long-term stability andefficiency are linked to market development and liberalization. Our findings furthersuggest that financial crises have a negative impact on the efficiency of emergingmarkets but only in the short term.We use a three-step process employing multifractal detrended fluctuation analysis tostudy time-varying changes in the volatility and efficiency of Asian emerging equitymarkets. Our findings suggest that, in emerging markets, long-term stability andefficiency are linked to market development and liberalization. Our findings furthersuggest that financial crises have a negative impact on the efficiency of emergingmarkets but only in the short term

Outsourcing the Islamic way: a look into the challenges faced by financial institutions

Fuelled by the growth of Islamic finance, banks and other financial institutions are increasingly seeking to outsource their non-core business functions. The benefits of outsourcing have already been well documented in literature and while it is good business sense to indulge in outsourcing when required, it becomes a matter of concern when it comes to outsourching Shariah compliancy. Although there is a great avenue for growth in outsourcing, the industry must be conscious of the risks involved. This article addresses the issues and challenges in outsourcing Shariah approval for banks that do not have their own Shariah advisory board. This unique perspective into outsourcing by Islamic banks divulges into the Shariah risks, governance issues and Shariah arbitraging. For instance, when dealing with consultancy firms that contract Shariah scholars, the issue of rubber stamping is created. This becomes a problem because in many cases these scholars are not held accountable for their actions as the board of directors would be, hence leading to a conflict of interest between Shariah scholars and banks. Furthermore, it is established that subsiding this risk can be done through a convergence of Shariah opinions and a greater need for collaboration between the private sector, the government and regulatory bodies is required

Asia Pacific business cycle: ties with Islamic stock indices

The rise of Islamic finance, in particular the Islamic equity market, has called for research in various arenas of finance and economics, in part due to evidence supporting a causal link with macroeconomic variables. One such field is the impact Islamic stock indices may have on business cycles and vice versa. This study pioneers in understanding the relationship between the volatilities of Islamic stock indices and business cycles and comparing it against their conventional counterparts. Taking daily stock returns of 12 years for Asia Pacific, our results indicated towards more volatility across Islamic stock indices during economic downturns. Inversely, Islamic stock indices appeared less volatile during the growth phase of a business cycle. The authors attributed this singularity to the small universe of stocks that make up the Asia pacific index and the heavy reliance on western and global markets for trade. This preliminary study hopes to contribute towards a dearth in literature on the understanding of the relationship between real sector business cycle and Islamic stock indices

Investigating stock market efficiency: a look at OIC member countries

The tremendous growth of emerging and developing markets bring forth new arenas ofresearch. One such area is the efficiency of stock markets. In light of the Efficient Mar-ket Hypothesis (EMH) several studies have been undertaken over the past two decade,with much focus being on developed markets and certain developing countries. However,a dearth in literature is seen for this niche on Organization of Islamic Conference (OIC)member countries. Following the recent global crisis, attention on emerging and develop-ing markets have increased tremendously, questioning whether these countries’ market areapt in withstanding influxes of capital without crashing. The OIC despite its global presenceand potential has often been criticized about its stock markets, which are marred by under-development and illiquidity. This paper focuses on analysing the weak-form efficiency ofOIC member stock markets to determine their efficiency rankings during different business cycles. Our results are indicative of improving efficiency over the past decade