How informative are stock prices of Islamic banks?

Pejman Abedifar, Kais Ben Hmida Bouslah, Shatha Qamhieh Hashem, Liang Song

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Abstract

Using a sample of 2,210 observations for 170 banks operating in 12 countries with dual banking systems over 2005–2017 period, we find that Islamic banks have lower stock return non-synchronicity, lower illiquidity ratio, and their current returns have lower future earnings prediction ability than conventional banks. The results hold for the GCC-member countries and in the non-crisis period. Hence, Islamic banks in such countries have less information content in stock prices than conventional banks that can be due to their lower degree of transparency mandated by their financial paradigm. This suggests that for Islamic banks, market discipline may not be as effective as it is for conventional banks and hence they require more direct supervision. The finding has important implications for policymakers in countries with dual banking systems.
Original languageEnglish
Article number101203
Number of pages17
JournalJournal of International Financial Markets, Institutions and Money
Volume66
Early online date19 May 2020
DOIs
Publication statusPublished - May 2020

Keywords

  • Stock Return non-synchronicity
  • Stock illiquidity
  • Future earnings prediction ability
  • Islamic banking

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