Joakim Westerlund

Professor, Programchef - Magisterprogram i Dataanalys och ekonomi

Some preliminary evidence of price discovery in Islamic banks

Författare

Paresh Kumar Narayan
Susan Sunila Sharma
Kannan Sivananthan Thuraisamy
Joakim Westerlund

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.

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