IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v45y2018icp150-157.html
   My bibliography  Save this article

Does the degree of Shari’ah compliance affect the volatility? Evidence from the MENA region

Author

Listed:
  • Ahmed, Neveen
  • Farooq, Omar

Abstract

Growing interest in Shari’ah compliant indices evolves with the surge in Islamic financial asset value over the past decades, and the need to understand how these indices perform in comparison with conventional ones. We focus our analysis on the MENA region and answer the following questions; Does the degree of Shari’ah compliance affect volatility? Does volatility behavior of Shari’ah-compliant portfolio different than volatility behavior of non-Shari’ah-compliant portfolio? We cover the period between 2003 and 2013, we decompose our sample into pre and post financial crisis, and we pursue a novel approach of distinguishing between different degrees of Shari’ah compliance. We analyze the difference in returns and volatility behavior of Shari’ah versus conventional portfolios. We use Component-GARCH to analyze difference in volatility behavior between Shari’ah and conventional portfolios. Our results show asymmetric impact of volatility behavior among the three portfolios in pre versus post financial crisis. In additional, volatility behavior alters as we compare the complete sample against pre and post financial crisis. The most compliant portfolio shows a reduction in the effect of short-run on long-run volatility. In addition, our result shows that the persistence in the long-run component deceases after the financial crisis in the most Shari’ah compliant portfolio.

Suggested Citation

  • Ahmed, Neveen & Farooq, Omar, 2018. "Does the degree of Shari’ah compliance affect the volatility? Evidence from the MENA region," Research in International Business and Finance, Elsevier, vol. 45(C), pages 150-157.
    • Handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:150-157
    DOI: 10.1016/j.ribaf.2017.07.143
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531917301782
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2017.07.143?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carol A. Marquardt & Christine I. Wiedman, 2004. "How Are Earnings Managed? An Examination of Specific Accruals," Contemporary Accounting Research, John Wiley & Sons, vol. 21(2), pages 461-491, June.
    2. Gul, Ferdinand A., 2001. "Free cash flow, debt-monitoring and managers' LIFO/FIFO policy choice," Journal of Corporate Finance, Elsevier, vol. 7(4), pages 475-492, December.
    3. repec:ipg:wpaper:2014-401 is not listed on IDEAS
    4. Chung, Richard & Firth, Michael & Kim, Jeong-Bon, 2005. "Earnings management, surplus free cash flow, and external monitoring," Journal of Business Research, Elsevier, vol. 58(6), pages 766-776, June.
    5. Press, Eric G. & Weintrop, Joseph B., 1990. "Accounting-based constraints in public and private debt agreements : Their association with leverage and impact on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 65-95, January.
    6. Sweeney, Amy Patricia, 1994. "Debt-covenant violations and managers' accounting responses," Journal of Accounting and Economics, Elsevier, vol. 17(3), pages 281-308, May.
    7. Caylor, Marcus L., 2010. "Strategic revenue recognition to achieve earnings benchmarks," Journal of Accounting and Public Policy, Elsevier, vol. 29(1), pages 82-95, January.
    8. Shafaai, Shafizal & Masih, Mansur, 2013. "Determinants of cost of equity: The case of Shariah-compliant Malaysian firms," MPRA Paper 62364, University Library of Munich, Germany.
    9. Mohamed Albaity & Rubi Ahmad, 2008. "Performance of Syariah and Composite Indices: Evidence from Bursa Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 4(1), pages 23-43.
    10. repec:bla:jfinan:v:53:y:1998:i:3:p:819-843 is not listed on IDEAS
    11. Stewart C. Myers, 1993. "Still Searching For Optimal Capital Structure," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 4-14, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kok, Seng Kiong & Akwei, Cynthia & Giorgioni, Gianluigi & Farquhar, Stuart, 2022. "On the regulation of the intersection between religion and the provision of financial services: Conversations with market actors within the global Islamic financial services sector," Research in International Business and Finance, Elsevier, vol. 59(C).
    2. Delle Foglie, Andrea & Panetta, Ida Claudia, 2020. "Islamic stock market versus conventional: Are islamic investing a ‘Safe Haven’ for investors? A systematic literature review," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hooy, Chee-Wooi & Ali, Ruhani, 2017. "Does a Muslim CEO matter in Shariah-compliant companies? Evidence from Malaysia," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 126-141.
    2. Benjamin Uyagu & Alexander Olawumi Dabor, 0. "Earnings Management and Corporate Social Responsibility," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(65), pages 70-87, September.
    3. Lars Moratis & Max van Egmond, 2018. "Concealing social responsibility? Investigating the relationship between CSR, earnings management and the effect of industry through quantitative analysis," International Journal of Corporate Social Responsibility, Springer, vol. 3(1), pages 1-13, December.
    4. Silva, Aldy Fernandes da & Weffort, Elionor Farah Jreige & Flores, Eduardo da Silva & Silva, Glauco Peres da, 2014. "Gerenciamento de resultados e crises econômicas no mercado de capitais brasileiro," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 54(3), May.
    5. Omar, Ayishat & Tang, Alex P., 2019. "Earnings management and convertible preferred stock calls," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 423-433.
    6. Timothy A. Seidel & Chad A. Simon & Nathaniel M. Stephens, 2020. "Management bias across multiple accounting estimates," Review of Accounting Studies, Springer, vol. 25(1), pages 1-53, March.
    7. Alan V. S. Douglas, 2003. "Corporate Investment Incentives and Accounting†Based Debt Covenants," Contemporary Accounting Research, John Wiley & Sons, vol. 20(4), pages 645-683, December.
    8. Hunt, Alister & Moyer, Susan E. & Shevlin, Terry, 1996. "Managing interacting accounting measures to meet multiple objectives: A study of LIFO firms," Journal of Accounting and Economics, Elsevier, vol. 21(3), pages 339-374, June.
    9. Fang Sun & Fengyun Wu, 2023. "The Impact Of Debt Structure On Auditorchoice," Accounting & Taxation, The Institute for Business and Finance Research, vol. 15(2), pages 105-115.
    10. Joliet, Robert & Muller, Aline, 2013. "Capital structure effects of international expansion," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 375-393.
    11. Khushbu Agrawal & Chanchal Chatterjee, 2015. "Earnings Management and Financial Distress: Evidence from India," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 140-154, October.
    12. Dean Hanlon, 2019. "Mandatory accounting change and debt covenant violation: Additional evidence from SFAS 150," Australian Journal of Management, Australian School of Business, vol. 44(3), pages 355-387, August.
    13. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September.
    14. Connie L. Becker & Mark L. Defond & James Jiambalvo & K.R. Subramanyam, 1998. "The Effect of Audit Quality on Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 1-24, March.
    15. Ioannis Dokas & Christos Leontidis & Nicolaos Eriotis & Konstantinos Hazakis, 2021. "Earnings Management. An overview of the relative literature," Bulletin of Applied Economics, Risk Market Journals, vol. 8(2), pages 25-55.
    16. Martínez-Ferrero, Jennifer & Prado-Lorenzo, José Manuel & Fernández-Fernández, José Miguel, 2013. "Responsabilidad social corporativa vs. responsabilidad contable," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 16(1), pages 32-45.
    17. Mohamed Douch & Omar Farooq & Yuliya Kalinina, 2020. "Exposure to Provincial and National Information and Firm Performance: Crisis Period Evidence from China," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(1), pages 1-11, February.
    18. Aloke (Al) Ghosh & Doocheol Moon, 2010. "Corporate Debt Financing and Earnings Quality," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(5‐6), pages 538-559, June.
    19. Aljughaiman, Abdullah A. & Nguyen, Tam Huy & Trinh, Vu Quang & Du, Anqi, 2023. "The Covid-19 outbreak, corporate financial distress and earnings management," International Review of Financial Analysis, Elsevier, vol. 88(C).
    20. Markarian, Garen & Pozza, Lorenzo & Prencipe, Annalisa, 2008. "Capitalization of R&D costs and earnings management: Evidence from Italian listed companies," The International Journal of Accounting, Elsevier, vol. 43(3), pages 246-267, September.

    More about this item

    Keywords

    Shari’ah index; Stock volatility; CGARCH; MENA region;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:150-157. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.