Some preliminary evidence of price discovery in Islamic banks

Summary, in English

In this paper using time-series data for a large number of Islamic bank stocks belonging to eight Islamic countries we test for evidence of price discovery. We find that in each of the eight countries there appears a bank that dominates the price discovery process. We then utilize this information on price discovery to form a portfolio of price discovery dominating bank stocks and compare its performance with portfolios of banks characterized by country and volatility. We show that buying a portfolio of price discovery dominant banks and selling most of the country-specific and volatility portfolios allow an investor to maximise profits or minimise loss. Our results are (a) robust to non-Islamic banks and to a larger sample of combined Islamic and non-Islamic banks, and (b) suggest that economic significance of price discovery is stronger for non-Islamic banks.

• Author: Paresh Kumar Narayan; Susan Sunila Sharma; Kannan Sivananthan Thuraisamy; Joakim Westerlund
• Department/s: Department of Economics
• Publishing year: 2018
• Language: English
• Pages: 107-122
• Publication/Series: Pacific Basin Finance Journal
• Volume: 52
• Links: http://dx.doi.org/10.1016/j.pacfin.2017.12.007
• Document type: Journal article
• Publisher: Elsevier
• Topic: Economics
• Keywords: Bank stocks; Islamic countries; Portfolio; Price discovery; Profits
• Status: Published
• ISBN/ISSN/Other: ISSN: 0927-538X