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This paper aims to document the effect of shariah compliance on stock price synchronicity.

This paper uses the data of non-financial firms from India and various estimation procedures (pooled OLS and instrument variable regression) to test the arguments presented in this paper. The time period of the study ranges between 2000 and 2019.

The results show that shariah-compliant firms have significantly higher levels of synchronicity than non-compliant firms. The findings hold after comprehensive inclusion of relevant controls and to a number of sensitivity tests. The authors attribute this result to the unique financial characteristics (lower levels of leverage, liquidity and cash) of shariah-compliant firms. The paper argues that these characteristics are related to better information environment which is responsible for higher levels of synchronicity. The paper also shows that the difference in the synchronicity levels of the two groups is less pronounced for those shariah-compliant firms that have relatively high levels of leverage and cash ratios.

The authors believe that this is an initial attempt to document the impact of shariah compliance on stock price synchronicity.

This paper aims to investigate whether the COVID-19 pandemic leads to the formation of herding behaviour among investors in Shariah-compliant stocks.

This study uses a sample of the stocks that constitute the Dow Jones Islamic Market Malaysia Titans 25 Index, over the period from 6 December 2017 to 12 March 2021.

This paper provides robust evidence on the contribution of the COVID-19 pandemic to the formation of herding behaviour in Shariah-compliant stocks. The findings also reveal that herding behaviour occurs only during falling market.

The findings provide useful implications for policymakers and portfolio managers seeking to understand the behaviour of investors in Shariah-compliant stocks during turbulent periods. The presence of herding behaviour begs the question on the market efficiency and limits its potential to offer diversification benefits to investors. The findings suggest that policymakers and investors should mitigate misvaluations that occurred during the COVID-19 outbreak because the herding behaviour can drive stock prices away from their equilibrium values. Thus, regulators should adopt appropriate policies to enable the market to reach a more efficient level by monitoring and improving the quality of information and facilitate their transmission to the market. The misevaluation opportunity enables market timers to sell overpriced stocks and purchase underpriced stocks. The findings also imply that investors should implement effective hedging strategies to mitigate the downside risk. In addition, the results suggest that investors should devise their trading strategies in falling and rising markets during the COVID-19 pandemic.

There is meagre literature on the effect of the COVID-19 outbreak on the formation of herding behaviour among investors. Studies conducted on herd behaviour are widely focused on Shariah non-compliant stocks, only a few ones deal with Shariah-compliant stocks. The novelty of this paper consists in addressing this gap in the literature through examining the presence of herding behaviour on the part of investors in Shariah-compliant stocks in Malaysia before and after the COVID-19 outbreak.

The purpose of this paper is to examine the impact of dividend announcements on the stock return of Shariah-compliant and conventional stocks.

An event study methodology is applied to study the beta anomaly. Market-adjusted return model, mean-adjusted return model and market model have been applied to calculate excess returns. Estimation period used in this study is 130 days, and event period consists of 21 days in total, i.e. starting from the day –10 “before the cash dividend announcement” to day +10 “after the cash dividend announcements.

It has been concluded from the results that dividend plays an informational role in the Pakistan Stock Exchange. As the investors in Pakistan react favorably to the dividend increase announcements and unfavorably to the dividend decrease announcements, they consider dividend increase announcement as good news and dividend decrease announcement as bad news.

The findings of this study have several implications for different participants of the stock market, such as investors, academicians, researchers, fund managers and policymakers. They can use this information to make decisions while making efficient portfolios. Investors may get abnormal returns by focusing on the dividend announcement patterns. This can influence the attitude of investors toward efficient investments in the stock market and ultimately contribute to the betterment of society. This study is also beneficial for academicians and researchers, as it provides a comparative analysis of Shariah-compliant and conventional stocks and the anomalous effect of dividend announcements on stock return.

Limited research in the world’s context and null is available in Pakistani context on the subject matter. The comparative analysis of “Shariah-compliant” and “conventional” stocks provides insight into the asset pricing of Shariah-compliant stocks that have not been explored earlier. This study also uses three different methods (mean model, market model and market-adjusted return models) to compare Shariah-compliant and conventional stocks

This paper aims to document the information transmission capacity of Shariah-compliant firms.

The vector auto-regression (VAR) model is used to test the information transmission capacity of Shariah-compliant firms in India during the period between 2010 and 2015.

The findings show that the returns of non-Shariah-compliant firms lead the returns of Shariah-compliant firms. It is argued that non-Shariah-compliant firms possess certain financial characteristics (higher leverage, higher accounts receivable and higher cash holdings) that make their information environment better than information environment of Shariah-compliant firms. The authors argue that superior information environment leads to timely incorporation of market-wide information, thereby causing the returns of non-Shariah-compliant firms to lead the returns of Shariah-compliant firms. It is also shown that the result holds in various market conditions.

It is believed that prior literature does not adequately address the information transmission capacity of the stock prices of Shariah-compliant firms. The gap is filled by documenting that stock prices of Shariah-compliant firms that are more informative than stock prices of non-Shariah-compliant firms.

This study aims to provide a comparative insight into the level of informational efficiency and irregularities of Shariah-compliant stocks and conventional stocks in three emerging markets, namely, China, Malaysia and Pakistan. The empirical evidence is provided for pre-crisis and crisis periods caused by the Covid-19 pandemic.

Informational efficiency is measured using the variance ratio (VR) Test developed by Kim (2006). The Approximate Entropy (ApEn) Metrics is used to investigate the level of irregularities in stock prices caused by the pandemic.

All the three emerging markets in the sample are not immune to the crisis caused by Covid-19 pandemic. The level of informational efficiency of both the Shariah-compliant and conventional stock is affected by the crisis. However, the former exhibits relatively high level of informational efficiency and stability in returns as compared to more volatility of conventional stocks.

This study provides market agents and policy makers with a robust assessment of the impact of the Covid-19 pandemic on informational efficiency of Shariah-compliant and conventional stocks. Relatively high informational efficiency of Shariah-compliant stocks indicates that they are more transparent and that investors can trust the Shariah-compliant stocks more. This higher level of transparency and trust leads to more steady returns and lower levels of risk even during turbulent time like Covid-19. Investors can gain superior returns by conducting fundamental analysis and investing in index funds.

To the best of the authors’ knowledge, this is the first study that highlights the difference in informational efficiency of conventional stocks and Shariah-compliant stocks in the crisis period caused by Covid-19. Unlike previous studies, this study uses firm level data which enables firm-wise assessment of informational efficiency.

The purpose of this paper is to investigate the impact of the Indonesia Shariah-compliant Stock Index (ISSI) on the performance of included shares. In essence, the authors ask whether the establishment of the ISSI provides abnormal returns for the firms that are not included in the Jakarta Index.

The authors use an event study methodology to estimate cumulative abnormal returns in the days surrounding the event to examine the relationship between Shariah-compliant investments and stock returns. The estimation window of 90 trading days prior to the event (−30) to day 60 after (+60) is adopted. They also use a range of investment performance measures to provide new evidence on whether faith-based ethical investments generate superior performance compared to their unscreened benchmarks.

Using daily returns, the Indonesia ISSI and panel data model, the findings show that the inclusion of the ISSI has a positive impact on the financial performance of the included shares during the 41-day event window. The evidence also suggests that the ethical investment has a significant influence on the performance of stock market returns.

This study offers insights to policymakers, investors and fund managers interested in the indices’ performance. A key conclusion that could be derived by bodies that regulate Islamic products and services is that investors are not only concerned about what is profitable but also what makes their investments ethical.

Although the global growth of the Islamic capital market products and services has been tremendous in recent years, very few studies focus on the Indonesian market and indeed, none of them devote sufficient attention to Shariah-compliant investments and stock returns.

This study aims to examine the existence of herding and the impact of economic and political factors in the Shariah-compliant stocks of Gulf Cooperation Council markets, namely, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. This study also seeks to explore the existence of herding under market stress and cross-stocks herding between Shariah-compliant and conventional stocks.

The data period is from 1 January 2016 to 31 December 2021. Panel data regression and panel quantile regression are used to examine herding.

The results show that herding tends to exist in Shariah stocks before the pandemic but is more pronounced in both types of stocks during the pandemic. The empirical evidence shows that economic factors are significant to herding before and during pandemic, whereas the political factors are only shown to be significant before COVID-19. Conventional stocks are correlated to the herding of Shariah stocks but the Shariah stocks have no significant impact on the herding of conventional stocks. Panel quantile regression shows that herding exists in extreme conditions but not all markets perform similarly.

The results of this study imply that the political factor can lead investors to herd. This political factor represents information that is used by investors to herd, consistent with the prediction of information-based theory of herding. Hence, policymakers and regulators need to be wary of any change in the political factors as they may cause movement in stock prices that deviate from fundamental value because of investor herding.

This paper aims to examine the relationship between Shariah compliance and corporate capital structure decisions. This study explores the variation of capital structure speed of adjustment.

The authors’ sample includes a sample of the largest 200 nonfinancial firms trading in the Malaysian and Pakistan stock markets. This study uses ordinary least squares and dynamic two-step system generalized method of moments to test the hypotheses of the study.

The results show that Shariah-compliant firms use a lower level of leverage than the noncomplaint firms. Moreover, while both types of firms have optimal capital structures, the speed of adjustment toward the targets is slower for Shariah-complaint firms than non-Shariah-compliant firms. This variation can be seen through the different levels of market imperfection experienced by the two types of firms. Shariah-compliant firms follow Islamic rules that restrict the type and degree of leverage, thus affecting the availability of external funding to Shariah-compliant firms.

The findings call for more development and innovation of financing instruments that comply with Shariah rules that will increase of supply of external funds for Shariah-compliant firms and, thus, reduce market imperfections that are faced by Shariah-compliant firms.

The study contributes to the limited number of studies that examine the nexus between conventional corporate theories and Islamic corporate finance.

Initial Public Offering (IPO) is a major milestone for a company. It allows a private company to issue shares to a much broader group of investors and become public. But conclusive evidence of the driving forces behind investors’ demand is yet to be identified. Therefore, the major purpose of this study is to assess the level of investors’ demand in IPO and how investors’ demand in IPOs is affected.

The study will employ 80 IPO companies of a Muslim-majority country, Bangladesh, starting from 2013 to 2021 with application of linear and quantile regressions. Apart from that, t-test will be used to compare means of groups of Shariah-compliant and non-Shariah-compliant firms and IPOs under fixed-price and book-building mechanism.

Oversubscription is higher for IPOs issued through fixed-price method compared to book-building method, but no significant difference is found in oversubscription for Shariah firms compared to non-Shariah firms based on t-tests. The authors found IPO size, firm size, IPO risk, proportion of shares offered to public, and bank interest rate to have significant impact on the IPO demand. Some models found non-Shariah compliance status of IPO companies to be a significant factor for the investors to demand IPO. Quantile regression results found board independence to have a positive association with larger, less-subscribed firms and board size to have a negative relation with IPO demand, for smaller firms with high demand.

Future studies may apply the findings to other settings, especially into the reasons behind preference for non-Shariah-compliant firms and higher demand for IPOs during higher interest rate. Equity issuing firms and issue managers can benefit from this study by wisely deciding on the proportion of shares for public, issue size and board of director composition. Shariah considerations cannot be ignored given that more information on Shariah compliance is disseminated among investors despite current non-preference for Shariah-compliant IPOs. On the other hand, institutional investors and general investors should consider firm-specific, governance and macroeconomic factors in IPO investment. Likewise, regulators would do well to bring in quality IPOs with characteristics mentioned in this study for ensuring stability of the market.

The main contribution of the study is identifying determinants of IPO demand: faith, governance, macro issues – understanding whether one or many of the above factors drive investor demand in IPOs of a Muslim-majority country will be the main contribution.

This paper aims to expand the literature on performance and volatility of Islamic funds and indices in comparison to their conventional unscreened counterparts, by studying the Moroccan case considering the recent introduction of Islamic finance in the country toward the end of 2015.

As there are still no Shariah-compliant indices in Morocco, the authors first applied four Shariah screening methodologies of some of the world leading equity index providers (i.e. Dow Jones, FTSE, S&P and MSCI) to screen the public listed companies in Casablanca Stock Exchange for Shariah compliance. Next, the authors constructed four Islamic float-weighted indexes for which they modeled the dynamic volatility using an extension of the AutoRegressive Conditional Heteroskedasticity models, namely, EGARCH(1,1).

The findings show that the screening process resulted in a well-diversified universe of Shariah-compliant stocks (25.6 per cent) to invest in. Furthermore, it is found that constructed Islamic indices outperformed the broad-based Moroccan All Shares Index (MASI) during the considered period of analysis (January 2013 to December 2014), and their long-run volatility is higher. This indicates that investors in Shariah-compliant stocks do not sacrifice financial performance for their risky investment. The estimates of the model show that volatility for the MASI is more persistent and takes longer time to die, and the leverage effect is positive for all indices, meaning that volatility of indexes’ returns is influenced more by good news than bad news, a result that is in contrast to other studies for developed countries.

On the arrival of the new banking law that introduced Islamic finance for the first time in Morocco, the authors suppose that these results could be very helpful for the Moroccan financial authorities in consideration with the construction of Islamic equity indices for Muslim investors seeking to invest ethically in accordance to their religious convictions but also for index funds managers and other equity market players.

The present study is the first of its kind in Morocco to construct Islamic indices using Shariah screening methodologies for which the volatility is modeled using an EGARCH(1,1) dynamic volatility model.