How informative are stock prices of Islamic banks?
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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.
Abedifar , P , Bouslah , K B H , Hashem , S Q & Song , L 2020 , ' How informative are stock prices of Islamic banks? ' , Journal of International Financial Markets, Institutions and Money , vol. 66 , 101203 . https://doi.org/10.1016/j.intfin.2020.101203
Journal of International Financial Markets, Institutions and Money
Copyright © 2020 Elsevier B.V. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.intfin.2020.101203