File(s) under permanent embargo
Some preliminary evidence of price discovery in Islamic banks
journal contributionposted on 2018-12-01, 00:00 authored by Paresh Narayan, Susan SharmaSusan Sharma, Kannan ThuraisamyKannan Thuraisamy, Joakim WesterlundJoakim Westerlund
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.