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Islamic spot and index futures markets: Where is the price discovery?

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  • Karabiyik, Hande
  • Narayan, Paresh Kumar
  • Phan, Dinh Hoang Bach
  • Westerlund, Joakim

Abstract

This paper examines the source of price discovery for Islamic stocks. We pair a large number of Islamic stocks to country-specific index futures and estimate price discovery using a vector error correction model. The results obtained using data for 19 countries suggest that for most countries (63% of the sample) price discovery is dominated by the spot market. We show that for these countries, a mean-variance investor makes annualized average profit of 4.91% compared to an average buy-and-hold profit of 2.97% per annum.

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  • Karabiyik, Hande & Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Westerlund, Joakim, 2018. "Islamic spot and index futures markets: Where is the price discovery?," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 123-133.
    • Handle: RePEc:eee:pacfin:v:52:y:2018:i:c:p:123-133
    DOI: 10.1016/j.pacfin.2017.04.003
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    2. Fassas, Athanasios P. & Papadamou, Stephanos & Koulis, Alexandros, 2020. "Price discovery in bitcoin futures," Research in International Business and Finance, Elsevier, vol. 52(C).
    3. Salisu, Afees A. & Ndako, Umar B. & Adediran, Idris A. & Swaray, Raymond, 2020. "A fractional cointegration VAR analysis of Islamic stocks: A global perspective," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
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    More about this item

    Keywords

    Price discovery; Asset pricing; Islamic stocks; Predictive regression; Investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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