Islamic Banking & Applied Finance

This paper examines the effects of time to maturity, volume and open interest on the price volatility of futures contracts in Turkish derivative markets. The determinant of volatility is tested using conditional variance models during the period from January 2, 2008 to June 30, 2015. The sample set consists of 457 futures contracts backed by gold, currency, indices and single stocks. Empirical results show that the time to maturity, volume and open interest significantly impact the volatility of futures contracts. It is found that as the maturity date approaches, volatility increases. Furthermore, a positive correlation is found between the price volatility of futures contracts and volume, whereas volatility and open interest are found to correlate negatively. Thus, both the Samuelson Hypothesis and the Mixture of Distributions Hypothesis are supported in Turkish derivative markets.

The purpose of this research is try to create Capital Asset Pricing Model (CAPM) alternative model at Indonesia Stock Exchange (IDX) that analyze the effect of the investment risk, trading activity and market multiple on stock return on low (IDR5 and IDR10), medium (IDR25), high (IDR50) and all tick size. This analysis focuses in (1) the relationship between return, VaR and market risk (2) the relationship between return, size and liquidity and (3) the relationship between return and PBV. We employ panel data model for data analysis. The research samples are active stocks of 12 sectors and members of LQ45 in 2004-2006 periods. The results of this research that VaR, beta, size, and liquidity positively related to stock return except the PBV. These findings indicate that VaR, market risk and trading activity are positively correlated to stock’s return; however the fundamental performance is not relevant with trading activity at lower price, especially. These results support the previous

This study investigates the determinants of bank profitability in the Syrian banking sector. It seeks to identify significant bank-specific, industry-specific, and macroeconomic determinants of bank profitability in Syria. We utilize the Generalized Method of Moments (GMM) technique on unbalanced panel data set the covers the period from 2004 until 2011. The empirical results reveal that profitability persists to a moderate extent. All bank-specific determinants (liquidity risk, credit risk, bank size, and management efficiency) with the exception of bank capital, affect bank profitability significantly. However, no evidence was found in support of the Structure Conduct Performance (SCP) hypothesis, since the concentration ratio found to have no impact on bank profitability. Finally, the study shows that macroeconomic variables (inflation rate and real gross domestic product growth rate) affect bank profitability significantly.

This paper examines the effects of time to maturity, volume and open interest on the price volatility of futures contracts in Turkish derivative markets. The determinant of volatility is tested using conditional variance models during the period from January 2, 2008 to June 30, 2015. The sample set consists of 457 futures contracts backed by gold, currency, indices and single stocks. Empirical results show that the time to maturity, volume and open interest significantly impact the volatility of futures contracts. It is found that as the maturity date approaches, volatility increases. Furthermore, a positive correlation is found between the price volatility of futures contracts and volume, whereas volatility and open interest are found to correlate negatively. Thus, both the Samuelson Hypothesis and the Mixture of Distributions Hypothesis are supported in Turkish derivative markets.

Risk of financial failure is defined as the inability of a firm to pay its current liabilities. Financial failure may lead firms to bankrupt or go into liquidation. This paper aims to develop reliable model to identify the financial failure risk of the firms listed on Istanbul Stock Exchange National-All Share Index. In line with this goal, we calculate 20 financial ratios to predict the financial failure of firms and develop the most reliable model by analysing these ratios statistically. As a result of the analysis using these 20 financial ratios, it is identified that there are 5, 3 and 4 important financial ratios in the discrimination of the successful and unsuccesful firms in 2009, 2010 and 2011, respectively. Thus the discriminant function is formed by using these variables. Capital adequacy and net working capital/ total assets ratios are seemed to be significant in all three periods. According to formed models, classification success are determined as 88,7% 90,4% and 92,2% ...

Credit risk impedes the growth of bank’s performance and position which is largely influenced by a number of factors that should be taken consideration and minimized. The objective of the study is to illustrate the inclusion of valid causes of selecting best model with regard to statistical significance. The study conducted on panel data consisting of 322 observations with 22 commercial banks and 15 consecutive years. The study finds that profitability, capital and bank size are inversely associated with bank credit risk whereas net interest margin and inefficiency have positive effect. Moreover consecutive addition of each variable is in charge of constructing the accurate model considering the variation and goodness of fit value in the respective model. However, no evidence is found in support of macroeconomic variables used in the model. Last not the least, the sensitivity of the model test argued in favor of baseline model which established the cause and effect rel...

The objective of this paper was to conduct literature review on how credit risk management impacts efficiency and to identify the knowledge gaps in the relationship between the two variables. This study will help the government in policy direction as far as growing the financial sector as a precursor to credit risk management and its contribution to growth in terms of improved savings, improved per capita income, improved credit to private sector and increased employment levels both directly and indirectly. From the empirical studies reviewed, credit risk management was found to influence financial performance but there is no concrete evidence on the relation that credit risk management has with efficiency of SACCOs. The previous studies have mostly focused on financial performance instead of efficiency and they also differ on the direction of the relationship between the two variables. The difference in findings among the scholars might arise from methodological differences and ope...

Using an unbalanced panel dataset of 5,265 observations from 454 US banks including 394 commercial and 60 savings banks, and Battese and Coelli (1995) Stochastic Frontier model, this study has determined the recent level of cost and profit efficiency estimates of these banks and analysed the impact of specialization, ownership structure, and size on the cost and profit efficiency. The results reveal that the cost efficiency of US commercial and savings banks is statistically higher than the profit efficiency with a score of 92.1% and 63.59% respectively; the global financial crisis did not affect cost efficiency much, but it had a shattering effect on the profit efficiency; the savings banks are more cost efficient than the commercial banks and commercial banks are more profit efficient than savings banks; there is no significant differences between the cost and profit efficiencies of privately and publicly owned banks; foreign banks are less cost and profit efficient compare to the...

The purpose of this research is try to create Capital Asset Pricing Model (CAPM) alternative model at Indonesia Stock Exchange (IDX) that analyze the effect of the investment risk, trading activity and market multiple on stock return on low (IDR5 and IDR10), medium (IDR25), high (IDR50) and all tick size. This analysis focuses in (1) the relationship between return, VaR and market risk (2) the relationship between return, size and liquidity and (3) the relationship between return and PBV. We employ panel data model for data analysis. The research samples are active stocks of 12 sectors and members of LQ45 in 2004-2006 periods. The results of this research that VaR, beta, size, and liquidity positively related to stock return except the PBV. These findings indicate that VaR, market risk and trading activity are positively correlated to stock’s return; however the fundamental performance is not relevant with trading activity at lower price, especially. These results support the previous

This empirical study analyses the determinants of capital adequacy of Cypriot banks mainly during the period of financial crisis using multiple linear regression. Specifically, the study focuses on certain features of banks (risk, liquidity, return etc.) to determine whether they affect the volatility of capital adequacy. The study provides supportive evidence that there is a negative statistically significant relationship regarding banksize and risk and a positive regarding the level of provisions and percentage of Net Interest Margin. The factors affecting the capital adequacy ratio in Cyprus are the increases in credit risk and nonperforming loans, excessive leverage, increased requirements by regulatory authorities for the implementation and fulfillment of the Basel III rules by 2019, the negative environment and lack of trust, intensive competition among banks, the small size of banks in comparison with the interbank market, low yield and target for long-term growth, poor corpo...

Uncovered interest rate parity (UIRP) provides a crucial theoretical concept for many models in international finance and international monetary economics. Using quarterly data span from 1998Q1 to 2010Q3, we run conventional regressions (OLS) and simple GARCH analysis on UIRP for the case of Malaysia-UK, Malaysia-Japan and Malaysia-Singapore. The empirical results show that these relationships do not support the UIRP in all cases. We, therefore, cannot reject the validity of UIRP violation such as in widely documented literature reviews. In addition, we also find that traditional (conventional) regressions on UIRP yield positive slope estimates for both Malaysia-UK and Malaysia-Japan cases, whereby for the case of Malaysia-Singapore, the beta slope estimates has a wrong sign (negative value). Results also show that the UIRP deviation for the case of Malaysia-Singapore has the smallest standard deviation. Moreover, the volatility analysis on the UIRP deviation using simple GARCH anal...

Uncovered interest rate parity (UIRP) provides a crucial theoretical concept for many models in international finance and international monetary economics. Using quarterly data span from 1998Q1 to 2010Q3, we run conventional regressions (OLS) and simple GARCH analysis on UIRP for the case of Malaysia-UK, Malaysia-Japan and Malaysia-Singapore. The empirical results show that these relationships do not support the UIRP in all cases. We, therefore, cannot reject the validity of UIRP violation such as in widely documented literature reviews. In addition, we also find that traditional (conventional) regressions on UIRP yield positive slope estimates for both Malaysia-UK and Malaysia-Japan cases, whereby for the case of Malaysia-Singapore, the beta slope estimates has a wrong sign (negative value). Results also show that the UIRP deviation for the case of Malaysia-Singapore has the smallest standard deviation. Moreover, the volatility analysis on the UIRP deviation using simple GARCH anal...

It is known that micro and small enterprises (often unbankable) have usually difficulties in the access to the financial system; in order to facilitate their credit access in many countries different kind of mutual guarantee schemes and institutions generally grant different typologies of guarantees. Mutual guarantee schemes and institutions can significantly contribute to facilitate the credit access of micro and small enterprises, by reducing the information asymmetries between the lender and the borrower and, in some cases, by decreasing the cost of funding. In this perspective, this research aims at offering a comprehensive comparative analysis of the most significant models of micro credit sector and guarantee funds adopted in two European country (Italy and Spain) and in two African countries (Morocco and Tunisia).The perspective adopted in the paper is finally addressed to highlight the strength and weaknesses of the different typology of microcredit guarantee system, in orde...

The severe political turmoil provoked by an allegedly mispriced private bond issue in Greece added to the controversial matter of whether prices of structured bonds sold to investors are †fair†or not. In this paper structured bond market is analysed with particular focus on valuation issues. It is argued that in practice prices are subjective, there is not a unique price that a structured bond should be transacted and model prices are in general irrelevant to the investor unless he has access to the underlying swap market. Consequently, the notion †overpricing†(conventionally defined as the difference between model and transacted price) is misleading. Boundaries for prices as seen by investors and issuers are constructed under a set of simplified assumptions. Issue price is the recommended price that a structured bond should be offered in the primary market and in most cases differs from model price. Competition among issuers should minimize the difference between them. The ...

This study investigates the dynamic relationship between stock return and trading volume in the banking sector of Amman Stock Exchange (ASE). In addition, it reveals the nature and direction of this relationship. Therefore, several tests were utilized to include: Bivariate regression model, vector error correction model (VECM), variance decomposition technique, impulse responds function, pairwise Granger causality and Johansen’s cointegration tests. The empirical results show that there is no significant relationship between trading volume and stock return on the sub-index level. Moreover, our results show a significant relationship between trading volumes and return volatility. Furthermore, Johansen’s cointegration analysis demonstrates that stock return is cointegrated with the trading volume indicating long-run equilibrium relationship. VECM provides evidence of long-run causality from return to trading volume. On the other hand, we used variance decomposition technique and i...

It is a well-known fact that most of the asset returns tend to be skewed and heavy-tailed. Heavy tailed distributions such as the Student's t distribution and Stable distribution are commonly used in finance to model asset returns that areheavy tailed. Additionally, Stable distribution allows not only for leptokurtosis but alsoskewness. Researchers that investigate the relationship between stock return volatility and trading volume have found a positive correlation between the volatility of returns and the volume traded. This paper focuses on this relationship by assuming the Student's t and the Stable distributions for innovations. In this paper, GARCH and Threshold GARCH (TGARCH) models are applied on the Istanbul Stock Exchange National-100 Index with the purpose of analyzing the relationships between the volatility of stock returns and the trading volume. JEL classification numbers: C13, C46, C58,G12

In this study we estimate indirect bankruptcy costs for a recent sample of large corporate bankruptcies in the United States over the period, 1997 to 2004. We find indirect bankruptcy costs of approximately 2%, 6.2% and 14.9% of firm value in years -3, -2 and -1 relative to the year of bankruptcy announcement respectively. Together with the direct costs reported in Altman (1984), our results suggest total bankruptcy related costs around 6.09%, 9.71% and 17.43% of firm value over the corresponding three years. These figures affirm that, despite significant changes in industry and market structures, bankruptcy related costs have remained fairly stable over the last 25 years. Cross-sectional analyses designed to search for determinants of indirect costs reveal that leverage, degree of competition, and firm size are among the more significant factors that influence the magnitude of such costs. Finally, consistent with the trade-off model of capital structure, our findings suggest that a...

The current study explores the short-term stock price reaction of cross-border bank mergers and acquisitions (M&As) in Western Europe for the period 1998-2009 which includes 40 M&A deals. Employing the classical event study methodology, we probe into the stock price effects of cross-border bank M&As by calculating abnormal returns for both bidders and targets. Moreover, we employ multivariate regression analysis in order to identify the determinants of value creation from cross-border bank M&As. Consistent with the pertinent literature, we demonstrate that targets significantly benefit from M&As, while bidders undergo price erosions during the M&A days. In specific, we find positive and significant abnormal stock price reaction of more than 3% on M&A day for targets and negative abnormal returns for bidders. The differential market behaviour between bidders and targets is more evident when the return on equity of the involved banks is taken into account.

Many authors have investigated the possibility of predictability in asset returns, but very little supportive evidence has so far been found in exchange rate returns. This empirical study uses the econometric model ARIMA (1,0,0) to study three different foreign exchange rates, namely the euro and the dollar, the euro and the Hungarian forint and the euro and the Korean won. It is worth mentioning that ARIMA (1,0,0) model is the same as the autoregressive model AR(1), as both of them are made up of one autoregressive parameter and no moving average parameters. The results show that it is not possible to explain and predict all three foreign exchange rates using the autoregressive model. Specifically, the technical rule on transactions ARIMA(1,0,0) is not effective in the case of euro vs dollar but it is effective in the case of euro vs the Hungarian forint and euro v-s the Korean won. Fairly accurate predictions can be made regarding the last two foreign exchange relationships.JEL cl...

Modelling volatility in financial asset prices is very important for investment decisions and risk management. It is known that, political risk has a negative effect on stock returns. Especially, markets in which political risk increased, investment decisions change based on the changes that occur in financial asset returns. On the other hand, investors react more to negative shocks than to positive shocks. In this context, for a healthy investment policy, it is very important to make decisions having regard to the variance breaks that occur because of the political risk. In the study, firstly, breaks in unconditional variance of Borsa Istanbul (BIST) sub-sector index returns are detected with Modified Iterated Cumulative Sums of Squares Method. In the sequel, political events are determined among all the events that cause breaks in variance. Finally, by using threshold autoregressive conditional heteroskedasticity (TARCH) model, it is tested that if political events that cause brea...

This study examines the impact of Digital Financial Services (DFSs) in confronting COVID-19 crisis in Bangladesh. It attempts to explore the magnitude of using DFSs along with the efficacy and difficulties of DFSs in coping with humanitarian emergency during COVID-19 pandemic. For analyzing the role of DFSs, the study collects primary data by carrying out a computerized questionnaire survey among 100 respondents. According to the field survey outcomes, DFSs are found useful as transactions can be done efficiently while maintaining social distance. Therefore, an increasing number of people are using DFSs for financial transactions during the pandemic. However, the survey outcomes also report that preferring DFSs over physical cash have many challenges such as data privacy concern, digital fraud, transaction limit problem, difficulty in cashing out and others. If these challenges are addressed properly, DFSs can play an important role in strengthening the resilience of populations dur...

Throughout the last decades, the global economy has been completely sophisticated. It has evolved in an increasingly more and more complicated context, given the mechanism of free trade, free haw of capital and goods; investment has become important for developing countries. In this respect, it is necessary to study the impact of foreign direct investment (FDI) on the economic growth of the host country, especially in Tunisia. By using recent techniques of time series analysis over the period 1975-2009. Our empirical results thus suggest that FDI could help boost the process of long-term economic growth.

This paper aims at examining the impact of oil price on GCC countries’ stock market returns. We apply wavelet analysis model for examining the relationship between oil and stock market returns. Using monthly data from May 2005 to December 2011, our results suggest that not all stock market in GCC region have a positive relationship with oil price as some have, instead, negative relationship with oil price. Oil price has a negative relationship with Bahrain, Saudi Arabia and United Arab Emirates. However, in consistent with literature review, oil price has a positive relationship with Kuwait, Qatar as well as Oman. On the other hand, wavelet analysis results show that a low correlation between the two variables exist in the short run but turns to have a highly, positive correlation in the long run indicating that oil has more influential power over stock returns the longer the period is. Furthermore, with the exception of Bahrain’s stock market returns, a bidirectional impact doe...

Among the most controversial issues in the literature, and empirical studies that have addressed the subject of bankruptcy prediction, there is certainly the understanding of what kind of indicators is most predictive in the report on time, and especially with fewer errors thorough a corporate crisis. In this regard, the present work contributes to the already vast literature that analyzes the determinants of the probability of firm default, with particular attention to the quantities contained in the accounting ratios. With the support of 9,390 Italian SMEs will occur the specific contribution of each ratio within each rating category considering, therefore, the predictive value of each explanatory variable. This survey’s results can even prove the predictive ability of capital structure and debt coverage compared to the minor validity of some indicators of turnover, profitability, and cash conversion cycle.

This study investigates the dynamic relationship between stock return and trading volume in the banking sector of Amman Stock Exchange (ASE). In addition, it reveals the nature and direction of this relationship. Therefore, several tests were utilized to include: Bivariate regression model, vector error correction model (VECM), variance decomposition technique, impulse responds function, pairwise Granger causality and Johansen’s cointegration tests. The empirical results show that there is no significant relationship between trading volume and stock return on the sub-index level. Moreover, our results show a significant relationship between trading volumes and return volatility. Furthermore, Johansen’s cointegration analysis demonstrates that stock return is cointegrated with the trading volume indicating long-run equilibrium relationship. VECM provides evidence of long-run causality from return to trading volume. On the other hand, we used variance decomposition technique and i...

In this paper, we forecast SET50 Index (The stock prices of the top 50 listed companies on SET (Stock Exchange of Thailand)) by using multiple regression. At the same time, we consider the existence of a high correlation (the multicolinearity problem) between the explanatory variables. One of the approaches to avoid this problem is the use of principal component analysis (PCA). In this study, we employ principal component scores (PC) in a multiple regression analysis. As can be seen, 99.4% of variation in SET50 can be explained by all PCAs. Accordingly, we forecast SET50 Index closed price for the period 1/03/2011 through 31/03/2011 by using three models. We compare loss function, the model forecast explained by all PCs have a minimum of all loss function. 1 Program of Mathematics and Applied Statistics, Faculty of Science and Technology, Nakhon Ratchasima Rajabhat University, Nakhon Ratchasima, Thailand. e-mail: nopsopipan@gmail.com , wanava29@gmail.com 2 School of Mathematics, Sur...

In this paper, we tried to see if the Tunisian banks are ready to confront the different and main challenges of financial liberalization. The main objective of this paper is defined in this context. We investigate the cost efficiency of Tunisian universal banks over the period 1997–2006. We examine the influence of environmental variables on the bank cost-efficiency. We used a parametric approach stochastic “SFA†. Our results generally indicate the deterioration of different financial indicators of Tunisian banking system, and show that there is a reduction in the level of cost-efficiency after introducing the environmental variables in the model. Our results suggest as well that private banks are more efficient than ownership banks; foreign banks are more efficient than domestic banks. Finally, we found that small and Medium-sized banks are more efficient than large banks.

This study investigated the relationship between exchange rate and inflation volatility and stock prices volatility in Nigeria, using time series quarterly data from 1986Q1-2012Q4. The volatilities of exchange rate and inflation in this study were calculated using standard GARCH(1,1) models. The relationship between exchange rate, inflation volatility and stock prices volatility was examined using GARCH(1,1)-S models of an extended GARCH-X models. The findings of the study show that there is a negative relationship between stock market prices volatility and exchange rate and inflation volatility in Nigeria. This result has an important implication for the investors and regulators in the stock market. Investors and regulators in the Nigeria stock market should take note of the systematic risks revealed by the exchange rate and inflation volatility when structuring their investment portfolios and diversification strategies as well as in formulating policies respectively.

This study investigates the determinants of bank profitability in the Syrian banking sector. It seeks to identify significant bank-specific, industry-specific, and macroeconomic determinants of bank profitability in Syria. We utilize the Generalized Method of Moments (GMM) technique on unbalanced panel data set the covers the period from 2004 until 2011. The empirical results reveal that profitability persists to a moderate extent. All bank-specific determinants (liquidity risk, credit risk, bank size, and management efficiency) with the exception of bank capital, affect bank profitability significantly. However, no evidence was found in support of the Structure Conduct Performance (SCP) hypothesis, since the concentration ratio found to have no impact on bank profitability. Finally, the study shows that macroeconomic variables (inflation rate and real gross domestic product growth rate) affect bank profitability significantly.

Literature abound justifying that industrialization is a pathway to economic development and growth. Whereas linkage between financial development and economic growth has long been a subject of intense scrutiny, not much has been done to examine the link between financial development and industrial growth. Using an aggregate production framework and autoregressive distributed lag (ARDL) cointegration technique for Nigerian time series data covering the period 1970 to 2009, the paper finds a cointegration relationship between financial sector development and industrial production. Both the long run and short run dynamic coefficients of financial sector development variables have negative and statistically significant impact on industrial production. Based on these research outcomes the following policy implications can be drawn: the most important task for government of Nigeria is to introduce further financial sector reforms to improve the efficiency of the domestic financial sector...

This study considers financial performances of commercial banks of Turkey in the period of 2003 and 2010. The financial performance of banks is measured using an indexing model developed in this study. The model considers fundamental performance characteristics of banks and chooses related explanatory factors determining these characteristics. The study covers 13 commercial banks of Turkey listed in Istanbul Stock Exchange. All banks for each year are ranked by employing the proposed indexing model. Moreover, the results of proposed performance measurement system are compared to annual net income and ROE of banks.