THE EFFECTS OF THE INTRODUCTION SYARIAH INDEX TO THE BURSA MALAYSIA STOCK INDEX AND BURSA MALAYSIA STOCK INDEX FUTURES.

ABSTRACT

This study tries to investigate the effect of introduction of Syariah Index to the price relationships and volatility transmissions between the Bursa Malaysia Stock Index and Bursa Malaysia Stock Index Futures. In addition, it also tries to find the relationships between Bursa Malaysia Stock Index, Bursa Malaysia Stock Index Futures and Syariah Index. Vector Autoregression (VAR) GJR-GARCH model was applied to nine years daily price of the variables investigated. The results present evidence that the introduction of Syariah Index has changed the price relationships and volatility transmissions between the spot and futures markets in Malaysia. Furthermore, the findings of this study show that the there are feedback effects in the price relationships between the variables investigated. The findings also suggest that Bursa Malaysia Stock Index is the main information producer in predicting and analyzing the volatility of Bursa Malaysia Stock Index Futures and Syariah Index. Finally, the overall conditional correlation estimates between the three variables investigated are higher in the unrestricted model form compared to the restricted model form.

Keywords:  spot-futures, syariah index, lead-lags, volatility, VAR GJR-GARCH, Islamic financial markets.

DYNAMIC REACTION OF SECTOR-SPECIFIC INDICES AND MACROECONOMIC FUNDAMENTALS

Abstract

This study focuses on the issue of dynamic reactions between sector-specific indices of Bursa Malaysia and macroeconomic variables. The traditional variable under observation in analyzing stock market performance has been an aggregate stock market index. However, the application of an aggregate index could lead to misleading interpretation on the actual performance of each sector in Bursa Malaysia. It is believed that variations in macroeconomic variables could have different effects on sector-specific indices in terms of magnitude and persistence. Therefore, the main objective of this study is to analyze the long-run dynamic interaction between sector-specific indices of Bursa Malaysia and macroeconomic variation by proposing certain model for each sectoral index. Specifically, the proposed models refer to the periods of before and after the 1997 financial crisis as well as a full period model with a dummy variable. All of the models emphasize on the aspects of magnitude, persistence and direction of the responses by sectoral indices due to shocks in macroeconomic variables. The sectoral indices of Bursa Malaysia selected for this study are namely, Construction, Plantation, Consumer Product, Finance, Industrial Product, Mining, Hotel, Property and Trading and Services. The macroeconomic variables are represented by real economic activity, interest rate, inflation rate, money supply and exchange rate. The monthly data series of the macroeconomic variables and stock market indices are obtained for the period from 1993 to 2006. In the analysis, the aspects of structural stability and application of a dummy variable have been taken into consideration so as to develop accurate and stable models. The application of a lag operator in analyzing the relationship between the variables has also been considered. This study shows that most of the movements of the sectoral indices of Bursa Malaysia have been explained by variations in macroeconomic variables in the long-run. This study has also identified various trends of responses among the sector-specific indices towards the innovation in macroeconomic variables. The results suggest that unanticipated changes in macroeconomic variables could lead to similar patterns in some of the sector-specific indices with the effects differing mainly in terms of magnitude as well as persistence of the responses that occur following the shocks.

Keywords: Dynamic reactions, sector-specific indices, cointegration, vector error correction model, impulse response functions and variance decompositions

FIRMS’ CAPITAL STRUCTURE AND THE ISLAMIC FINANCIAL DESIGN

Abstract

This study presents empirical evidence of capital structure of Syariah compliance firms of Malaysia. Empirical results imply that the agency cost, bankruptcy cost, profit and loss sharing, asset structure, age, growth, industrial classification, non-debt tax shields, profitability, volatility and size affected firms’ capital structure.  But most importantly, it is discovered that the issues of agency cost and bankruptcy cost are addressed effectively in Islamic mode of financing.  As a result it negates previous acquisition of agency cost that coherent in Islamic financing. At the same time it reveals that the design of Islamic financial system surpass its conventional counterparts, the bank-based or market-based system design, in dealing not only on the issues of agency costs but also the bankruptcy costs in extending financing to firms.

 

JEL classification: G32;

Keywords: capital structure; agency cost; bankruptcy cost; profit and loss sharing; Islamic financial system design;

ISLAMIC FINANCIAL SYSTEM DESIGN: WHAT ARE THE INCENTIVES?

Abstract

This paper examines the Islamic financial system design that is determined by the regulation dictating the structure of the banking industries, the law and accounting incentives.   This regulatory framework for financial intermediaries should be tailored to achieve the different levels of economic development.  How do these changes take place? Are these changes also aimed towards the changing roles of financial intermediaries and the emergence of new markets and products? Do the development of the legal and accounting standard have influenced on revolutionized roles of the financial intermediaries and market? And finally, how would all these changes affect the firm financing choices and capital structure? Therefore, the aim of this paper is to produce the incentives of regulation, law and accounting that may influence this design.

 

JEL classification: G21; G23; G28; 

Keywords: Islamic financial system design; regulation; law; finance; accounting;

DOES THE ISLAMIC FINANCIAL SYSTEM DESIGN MATTER? AN EMPIRICAL INVESTIGATION.

Abstract

This paper examines the empirical works that link between the financial designs and economic development. The permissible scope of activities for banks and other financial intermediaries, however, are determined by the regulation dictating the structure of the banking industries, the financial products and services the intermediaries offer and the information disclosure requirements in the financial market.  These aspects clarify the exogenous instruments that can be used to influence financial system design. These designs in return influence the choice of financing and the capital structure of the firm. Different financial system designs will manifest themselves in different divisions of activities between financial institutions and markets.   What are those types of Islamic financial designs?  Why do we care about Islamic financial systems designs?

 

JEL classification: G21; G28;

Keywords: financial design; bank regulation; legal requirement; Islamic banks; capital structure;