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We investigate whether crude oil markets are weak-form efficient during different economic cycles over multi-scales using multifractal detrended fluctuation analysis. Using crude oil prices from 1996 to 2018, our results for different sub-samples provide evidence that in the shorter horizon, the efficiency of prices tends to improve across each post-recession period of expansion. However, in the longer horizon, we do not observe such improvements in efficiency during recovery after recessions, especially during the global recovery after 2010. Overall, we find that the benchmark Brent crude oil prices are weak-form efficient, which implies that prices are largely unpredictable. We reevaluate our results using weekly data and rolling time windows. The findings remain robust to both tests and the use of eight oil price benchmarks.

This paper investigates the nexus of competition and stability by introducing the interaction of diversification and competition. We use a sample of both conventional and Islamic banks from 14 dual banking economies over 2005–2016. The core finding illustrates that competition does not impact bank stability and that diversification is insignificant in the competition-stability nexus. Further, we find that concentration is beneficial for the banking stability of both types of banks. In most of our results, we found no difference in the impact of competition and diversification on the stability of conventional and Islamic banks. To put our findings in a broader context, we argue that no difference between the business models can be considered an early signal of possible convergence between the two systems.

This paper examines the nature of time-varying systematic risk for both Islamic and non-Islamic sectoral indices. The novelty lies in the analysis of behavioural changes in beta according to the global economic state. Using daily stock market return data on 10 global sectors, we show that both Islamic and conventional indices follow a similar cyclical pattern over time. The sectoral beta turns out to be smaller for the Islamic market compared to the conventional market. These results remain robust to multiple additional tests. On this basis, we argue that a lower systematic risk of Islamic equities can offer portfolio diversification opportunities.

The objective of this paper is to analyse the time-varying changes of the three parameters, volatility, efficiency and integration on stock markets across emerging markets. We do this using a four-step process with focus on Multifractal Detrended Fluctuation Analysis to measure its efficiency. Our analysis show that lower volatility was found in short-term for countries that experienced fast paced economic growth. This increase in volatility is supported by a decrease in efficiency for the short-term, while market integration rose during periods of crises, which represent higher volatility. Hence, a tripartite relationship between our parameters is observed.

This study is novel in measuring the volatility and efficiency of Islamic stock markets of top oil-importing countries. Daily prices of six Islamic stock markets are analysed for volatility using EGARCH and efficiency using Multifractal Detrended Fluctuation Analysis, over three different economic regimes. The results indicate a concurrent movement of oil price volatility and Islamic stock market volatility, as Islamic stock markets are heavily reliant on the real economy, which faces the effects of oil price changes. Emerging markets faced higher volatility and lower efficiency than developed counterparts, owing to fast-paced economic and infrastructural growth, affecting the real sector of the economy.

The risk sharing principles of Islamic Finance have ironically been studied and used extensively outside the Muslim World. The development of early European city states was founded on the risk sharing principle. The risk sharing financing helped these city states to develop their infrastructure and rule the scientific and economic landscape of the west. The Western financial system of today still carries traces of risk sharing in the form of venture capital financing, albeit the primary focus has diverted to risk shifting†based debt financing. Over the past decades, much effort and research has gone into establishing a viable set of Islamic financial institutions. Most Muslim nations are heavily indebted with high reliance on multilateral financing primarily based on high interest rates. This vicious cycle of interest rates and debt has stunted the growth of these nations and worsened the conditions of the masses. This research brings to the forefront the concept of an equity in nature GDP†linked paper, which allows for enhanced risk sharing†based sovereign financing. It aims to present empirical proof of the stability this instrument offers in economic growth, for a large sample of developing economies, comprising bulk of Islamic countries. While analysing the empirical work, a strong favourable argument for this instrument is derived for its benefits in stability. Through this study, we endeavour to initiate a thought†provoking and practical discussion for further development of these instruments for the betterment of developing countries.

This paper attempts a novel approach in analysing the Japanese economy through a dual-dimension analysis of its stock market, examining the efficiency and market integration. Taking a period of 24 years, this study employs MFDFA and MGARCH to understand how the efficiency and integration of the stock market faired during different business cycle phases of the Japanese economy. The results showed improving efficiency over the time period. For the case of market integration, our findings conform to recent literature on business cycles and stock market integration that every succeeding recession creates a break into integration levels resulting in a decrease.

Literature is rife with studies on efficiency of stock markets and financial performance aspects. One such aspect is the measurement of sectoral efficiency amongst stock markets. While there are several studies analysing sectorial efficiency, there is no study on the efficiency of Islamic sector indexes. The rise of Islamic indices has raised the question and multiple studies have been undertaken in exploring and validating the better performance from a risk return framework for the Islamic indices. This study attempts to pioneer in this niche area by conducting a comparative analysis of 10 sectoral global indices for both conventional and Islamic counterpart spanning over 18 years. The sample time period runs from 1 January 1996 until 31 December 2014. To further validate our study, we have divided our data into four major time periods, to factor in different phases the world markets have gone through in the sample period, i.e. 1996–2000; 2001–2002; 2003–2006 and 2006 to 2014. The methodology selected in understanding the efficiency of these sectoral stock indices is the multifractal de-trended fluctuation analysis (MFDFA). Our analysis reveals that in the shorter horizon, efficiency tends to follow a similar pattern amongst the conventional and Islamic counterpart. Furthermore, Islamic sectoral indices generally tend to exhibit a higher efficiency regime across the last decade. Overall, Islamic index seems to have stayed attractive and resilient, allowing conformity with the weak form efficient market hypothesis.

Much research has been undertaken in the Efficient Market Hypothesis (EMH) over the preceding two decades. With Asian countries emerging as a global powerhouse in terms of regional economics, the interest in their stock markets has picked up recently. Asian markets traditionally comprised of many emerging markets are generally assumed to be more volatile and speculative in nature. Based on this crux, we focus specifically on the response of these markets efficiency to major crisis. In recent years, the Asian markets have experienced a phenomenal boom in attracting foreign capital inflow, with Singapore evolving into a global financial hub in terms of banking and financial services. Scepticism and cautious nature raises the question of whether these stock markets are efficient enough for further investment and development. Our study is unique in nature, as we focus on the efficiency of these market in response to crisis periods, comparing it with their pre-crisis period, both in shorter term of 1 year as well as longer term of 5 years post and pre crisis period. Taking Malaysia, Indonesia, Singapore and South Korea owing to their economic and financial development, we use MF-DFA to derive efficiency measure for comparative analysis with its own past. The findings put forth a notion of generally a deteriorating and negative impact of the Asian financial crisis, while the sub-prime crisis impact varies based on the economic structure of the economies. The findings concur with the mainstream literature and similar studies for other countries and region.

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.

The introduction and continual ambiguity surrounding Brexit vote has brought attention to the volatility of the London Stock Exchange (LSE). Using wavelets to decompose financial time series into short-term and long-term components, we study the volatility and efficiency of the different sectors in LSE around Brexit vote events. The results reveal that while the overall volatility reduced, various sectors within LSE behaved differently. Furthermore, the efficiency of the British stock market worsened drastically during the uncertainty of the Brexit vote.

Purpose: The aim of this study is to empirically understand whether Islamic banks have a positive relationship to economic growth in Indonesia. Methodology: This study examines the causal relationship amongst several selected variables: real GDP (RY), total deposit (TD), the change in the Consumer Price Index as an inflation proxy (INF), and the ratio of total imports and exports to nominal GDP (OE). In order to accomplish the research objectives of this study, a time series quarterly data spanning from the first quarter of 2003 to the last quarter of 2011 comprising of 36 data points has been used to perform an effective analysis. Findings: The inference deduced here is twofold; First Islamic banks in Indonesia are still unable to contribute significantly to Indonesia’s economic growth. Second, the relationship between Islamic banks and economic growth in Indonesia is positively but weakly correlated. Research Limitations: For this time series research, the researcher is limited by the small amount of data (2003.Q1 to 2011.Q4).

This study attempts to investigate market co-movements in Islamic and mainstream equity markets across US and Asia Pacific. The objective is to understand the behavior of contagion across multiple crises in the last decade and a half. Taking a lead from theory, of pure and fundamental contagion, we employ wavelet decomposition to unveil the multi-horizon nature of co-movement. Our findings support the popular belief, that the majority of the global shocks since 1996 were transmitted via excessive linkages from US to Asia Pacific, while the recent subprime crisis reveals a fundamental based contagion. In terms of the real sector grounded Islamic markets, they tend to show traces of reduced exposure in some crises owing to low leverage effect, while the less diversified portfolio nature increases vulnerability in other crises. The findings tend to provide an empirical ground for the argument of Islamic equities and their composition, as a possible buffer to financial crises.

The EMH has been the subject of much debate over the past few decades, with a recent surge in interest in Asian markets. Asian markets which traditionally comprise of many emerging markets are more volatile and speculative in nature. The heart of our study focuses on the East Asian economies, which have experienced massive capital inflows. This begs the question of whether or not the stock markets are efficient enough for further investment and development. Our paper differs from existing literature as it focuses on deriving weak form efficiency rankings during different business cycle phases. We endeavour further to assess the volatility and business cycle phases. Taking Malaysia, Indonesia, Singapore and South Korea owing to their economic and financial development, we use MF-DFA to derive efficiency rankings and find firstly, the overall efficiency has improved over the past two decades and secondly, markets are more efficient in growth phases in comparison to its preceding decline. Similarly, employing wavelet decomposition in conjunction with EGARCH, we obtain volatility of stock markets in two distinct time horizons, i.e. short term and long term. We find the markets to be more stable during economic boom than its preceding bust. Our results confer with mainstream literature.

The tremendous growth of emerging and developing markets brings forth new arenas of research. One untouched region is the study of business cycle comovements with stock market volatility within the Organization of Islamic Cooperation (OIC) member countries. The OIC comprises of several rapidly growing industries attracting several Foreign Direct Investments. The emerging nature of the markets and the rapid influx of Foreign Direct Investment bring about the question of how business cycles in the OIC member countries react to variations in the stock market. Taking 11 OIC member countries, we first derive their business cycle using the Christiano–Fitzgerald filter and then compare this to the decomposed (using wavelet) stock market volatility (using exponential generalized autoregressive conditional heteroscedasticity (EGARCH)) representing two timescales, short-term and long-term, to see the impact of business cycle phases on short-term and long-term traders. We find for several of our countries that stock...

In the current era of globalization, deregulation and liberalization of markets have led to financial integration amongst developing and developed countries. The sudden massive inflow of capital into developing country's stock markets begs the question of whether or not the markets are sufficiently efficient to handle the increasing integration of markets. Furthermore, the relationship between the integration and efficiency of stock markets tends to be of greater importance during economic downturns. Taking Turkey as a case study owing to its economic growth and importance in two successful blocs, i.e. the EU and the OIC, we attempt to analyse the linkages between stock market efficiency and integration during the different phases of the economy. The findings of our study provide an interesting insight into the relative improvement in volatility, efficiency and integration across business cycles, in a multi time scale analysis.

The Efficient Market Hypothesis has been the subject of considerable debate over the past several decades with a recent surge in interest in East Asian markets. This study investigates the East Asian economies, which have experienced massive capital inflows, inviting the question of whether these markets are efficient enough for further investment and development. We endeavour to assess the volatility and business cycle phases, providing a unique aspect in weak form efficiency studies. We focus on Malaysia, Indonesia, Singapore and South Korea due to their economic and financial development. Using Multifractal Detrended Fluctuation Analysis to study efficiency, we determine first that overall efficiency has improved over the past two decades and second that markets are more efficient in growth phases in comparison to their preceding decline. Our results concur with those reported in the mainstream literature.

Risk Sharing is the core of the Islamic finance, the closest modern equivalent being equity investments. Through the decades of Islamic Finance development scholars have stressed on equity as the most beneficial financial mechanism while most accept modern joint-stock companies as quasi Mush rakah and Mu rabah forms, but this segment is still small in Islamic finance. Multitude of reasons contributes to it, primarily, the risk averseness and myth of equities as more risky alternate. This paper attempts to investigate this myth utilizing MGARCH DCC method, by studying the volatilities and correlations of Islamic indices over a period of twelve years. The findings are promising, suggesting a low moving correlation between the conventional and Islamic indices. The results substantiate the authors’ argument, that during crisis, Islamic indices provide though not complete, but partial insulation, thus a safer haven. This bodes well for a hugely untapped Islamic alternate investment avenue for exploration.

The ripples of the financial crisis are still being felt over different parts of the world causing much distress to the real economy. The capital market, in particular, took a massive hit during the crisis plummeting to all-time lows. In the footsteps of globalization, a financial shock to the US capital market can cause a spill over effect to other markets, Islamic capital market included. Hence, this paper attempts to address the question whether Islamic indices are affected through fundamental changes or short-term influences by sudden changes in volatility as compared to their conventional counterparts. To empirically analyze this, we apply continuous wavelet technique to identify comovements between world financial indices and Islamic indices for World, Asia Pacific and Emerging Markets specifically. Covering a time period of 15 years (1997 – 2011), our results confer that Islamic indices in the Asia Pacific and Emerging Market region are partially immune to speculative shocks to global financial services making them a good alternative. Similarly, Islamic indices testified more stable due to their rigid screening criteria. © 2013 The IIUM Institute of Islamic Banking and Finance.

As the primary role of the capital market is to allocate the economy’s resources, the fundamental need for an efficient market arises from the importance of efficient resource allocations, which in turn will help the economy. In light of the efficient market hypothesis (EMH), several studies have been undertaken over the past two decade, but very few have been on the Organization of Islamic Cooperation (OIC). This chapter focuses on analysing the weak-form efficiency of OIC member stock markets to determine their efficiency rankings during different business cycles. The results are indicative of improving efficiency over the past decade.

The chapter provides some background on business cycles. When discussing business cycles, it becomes necessary to define clearly recessions and expansions. The National Bureau of Economic Research (NBER) defines recession as a period between a peak and a trough, and expansion as a period between trough and a peak. Furthermore, the different types of cycles and theories associated with business cycles are discussed. A key theory that is relevant in this book is the Real Business Cycle (RBC) theory. According to the theory, changes in technology in the business sector cause the booms and bust of a business cycle.

Analysing the market integration is an important part of understanding the economic nature of a stock market as it tells us its relationship with world markets and its effect based on movements in other markets. Organization of Islamic Cooperation (OIC) member countries, with higher volatility and greater market instability, are of particular interest in understanding how their markets would react to global or regional news. This chapter will analyse comparatively with developed markets the market integration of OIC member countries with the world average as well look into its regional integration.

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.

The research is an attempt to have an overview of the need for derivatives and their possible role in Islamic finance, stressing on the Shariah qualification and prohibitions on the controversial conventional derivative products. This research focuses on the derivative products and their role in risk management measures. Islamic financial industry has shown tremendous growth over the past decade but the management of risk is still an unresolved issue in the trillion–dollar Shariah–compliant industry. This paper attempts at having a continuous elaboration on the derivatives from a conventional perspective and closest alternatives that are available in Islamic finance. The findings suggest that conventional derivatives in their original form do not comply with Shariah norms and parameters. But in contemporary literature and thought, there exist Shariah–compliant mechanisms and instruments which provide similar risk management measures for Islamic financial markets.