Cost, revenue and profit efficiency in Islamic vs. conventional banks: empirical evidence using Data Envelopment Analysis (DEA)

The objective of this study is to compare the cost, revenue and profit efficiency of Islamic and conventional banks in Malaysia over the period 2006 to 2009. To represent the Malaysian Islamic and conventional banking sector, a sample of 39 banks were selected to participate in the study. The level of efficiencies was measured using the Data Envelopment Analysis (DEA) method, which applied the intermediation approach. The result shows that the levels of cost and profit efficiency for Malaysian Islamic banks are lower compared to the Malaysian conventional banks. The difference levels between cost and profit efficiency in the Malaysian banking sector are not influenced by revenue efficiency but, rather are subject to influence by internal and external factors

Relationship between stock market returns and exchangerates in emerging stock markets

This paper aims to study the relationship between stock market returns and exchange rates in emerging stock markets including Malaysia, Singapore, Thailand, Indonesia and Philippines. The data is taken from January 2003 to December 2012 using weekly closing indices and separated in two periods; before (2003-2007) and second, after (2008-2012) the financial crisis of 2008. Johansen-Juselius (JJ). Granger causality tests show that unidirectional causality exists between the stock market returns and exchange rates for Thailand before the financial crisis, whilst, for Indonesia and Singapore, the unidirectional causality between the two variables is detected in the period after the financial crisis. Error Correction Model (ECM) indicates the existence of long run causality between the two variables for Philippines. This study also finds that most of the emerging stock markets are informationally inefficient

A Review on Agency Cost of Shariah Governance in Mutual Fund

Mutual fund has become an increasingly important investment vehicle for retail investors, especially among households. Besides developing the institutional investment as an efficient momentum trader, the long-established separation of ownership and control in contemporary type of fund management has very much caused depreciation in shareholder value under minimum investor protection environment. The unobserved activities and widely magnitude decision skills of managers under imperfect contract with the tendency to serve self-interest exacerbates the shareholder wealth, predominantly in Shariah mutual fund, pertaining to dual investing interests. This paper reviews the theoretical and empirical literature with central attention given to the existing governance structure, Shariah governance in religious based fund, and some other related internal governance mechanisms. Concurrently, the review explains theoretically and conceptually the interrelationships among all relevant governance mechanisms. After some rigorous discussion and argument, this paper recommends further empirical investigation into this line of research to integrate the gap from developed market evidence

Derivatives trading and volatility spill-over: evidence from a developing derivatives market

The objective of the paper is to ascertain the influence of shares derivatives trading on the Malaysian stock market. Johansen-Juselius’ co-integration test reveals signs of increasing integration between these cash and futures markets over time. The Granger causality test indicates that the stock index futures Granger causes the cash index with no feedback in the reverse direction during periods of financial crisis and recovery. Significantly observable during the period was high participation of foreign investors in the futures market. The increase in the number of foreign investors in the futures market dramatically increases the herding activities in futures market trading. The findings suggest that the transmission of information from the futures market to the cash market could, to a certain extent, during a period of “bad economy”, be due to herding by foreign investors

The dividend payout policy - a study on Malaysian financial institutions

The purpose of this study is to identify the determinants of dividend policy in Malaysian financial institutions. Panel data set were constructed from 33 financial institutions in Malaysia for a period of 10 years (2001-2010). The results show a statistically significant positive relationship between dividend policy and profitability, which implies that Malaysian financial institutions distribute higher dividends when they record higher profitability. Lagged dividend also shows a positive significant relationship with dividend policy, which implies that financial institutions in Malaysia follow a stable dividend policy that maintains regularity of dividend payments with gradual adjustments of dividend payments towards the target payout. On the other hand, leverage shows a significant negative relationship with dividend policy, which means that a riskier financial institution pays out lower dividends. In conclusion, profitability, lagged dividend and leverage are found to be the major determinants of dividend policy in relation to Malaysian financial institutions. The results support the agency cost theory, signaling theory and the free cash flow hypothesis

A comparative study on the level of efficiency between Islamic and conventional banking systems in Malaysia

Purpose: The purpose of this paper is to study the difference (or lack of difference) in the efficiency level of Islamic and conventional banking in Malaysia. Are the Islamic banks performing as good as the conventional banks, even though they are constrained by Islamic tenets? Design/methodology/approach: Data envelopment analysis is used to measure the efficiency levels of banks in both sectors. Findings: It is found that there is no significant difference in the level of efficiency between Islamic banks and conventional banks. Research limitations/implications: The period of study is only three years, with only two banks which have been operating for more than three years, while the other Islamic banks in this study are just beginning their operation in Islamic banking. The inclusion of foreign banks operating in Malaysia in this analysis might distort the findings, as foreign banks have different capital structures and objectives compared to local ones. Practical implications: The paper shows that even though Islamic banks are limited by Islamic tenets in their operations, they are able to maintain a performance that is equivalent to the conventional banks. Originality/value: The paper makes comparisons of the efficiency levels between two different banking systems

Malmquist indices of productivity growth for islamic and conventional banks in Malaysia.

This paper studies the total factor productivity (TFP) of banks in Malaysia with the emphasis on comparing the relative productivities of Islamic and Conventional banks. The Malmquist index approach is used to decompose productivity growth into technical efficiency and technological change. The productivity growth is measured and decomposed into technical change and efficiency change. The efficiency change is further decomposed into pure efficiency change and scale efficiency. It is found that Islamic banks’ productivity growth is limited by its lack of technological change compared to its conventional counterparts. Nonetheless, both types of banks are operating at the correct level in terms of scale or size

The effect of oil price fluctuations on the Malaysian and Indonesian stock markets

This study is pursued with the objective of examining the effect of changes in crude oil price on the share prices of public listed companies on Bursa Malaysia and the Jakarta Stock Exchange as proxied by the Kuala Lumpur Composite Index (KLCI) and Jakarta Composite Index (JCI), respectively. The study employs the Engle-Granger Cointegration test and Error Correction Modelling (ECM). Using time series data from January 1986 through December 2006, this study finds a significant long-term relationship between the movement of crude oil price and the performance of the two stock markets. The two observed variables in both stock markets are also found to be positively correlated. The test results from Impulse Response Function and Variance Decomposition show the presence of a dynamic interaction between the movement in crude oil prices and the two stock market indices

Slice sampling technique in Bayesian extreme of gold price modelling

In this paper, a simulation study of Bayesian extreme values by using Markov Chain Monte Carlo via slice sampling algorithm is implemented. We compared the accuracy of slice sampling with other methods for a Gumbel model. This study revealed that slice sampling algorithm offers more accurate and closer estimates with less RMSE than other methods. Finally we successfully employed this procedure to estimate the parameters of Malaysia extreme gold price from 2000 to 2011

Slice sampler algorithm for generalized pareto distribution

In this paper, we developed the slice sampler algorithm for the generalized Pareto distribution (GPD) model. Two simulation studies have shown the performance of the peaks over given threshold (POT) and GPD density function on various simulated data sets. The results were compared with another commonly used Markov chain Monte Carlo (MCMC) technique called Metropolis-Hastings algorithm. Based on the results, the slice sampler algorithm provides closer posterior mean values and shorter 95% quantile based credible intervals compared to the Metropolis-Hastings algorithm. Moreover, the slice sampler algorithm presents a higher level of stationarity in terms of the scale and shape parameters compared with the Metropolis-Hastings algorithm. Finally, the slice sampler algorithm was employed to estimate the re- turn and risk values of investment in Malaysian gold market