Do Conventional and Islamic Stock Markets Subject to Different Market Anomalies?

Transcription

1. Volume XI , Issue 5(43), Fall 2016 Do Conventional and Islamic Stock Markets Subject to Different Market Anomalies? Empirical Evidences from Indonesia and Malaysia M. Shabri ABD. MAJID4 Faculty of Economics and Business Syiah Kuala University, Darussalam, Banda Aceh, Indonesia mshabri@unsyiah.ac.id Zulfa Alvi VAKHIRA Faculty of Economics and Business Syiah Kuala University, Darussalam, Banda Aceh, Indonesia Salina KASSIM Institute of Islamic Banking and Finance International Islamic University Malaysia Abstract: This study aims to investigate whether the conventional and Islamic stock returns are subject to different calendar anomalies by testing the monthly calendar effects on stock returns in both markets. Focusing on the Indonesian and Malaysian Stock Markets, the closing monthly prices of the Jakarta Stock Exchange Index (JKSE), Kuala Lumpur Stock Exchange Index (KLSE), Jakarta Islamic Index (JII) and FTSE Bursa Malaysia Hijrah Shariah Index (FBMHS) were considered covering the period from 2004 to 2015. An independent sample of t-test is adopted to explore the differences between the conventional and Islamic stock returns in both countries, while the calendar effects of the stock returns is then tested using the multiple regression. The study finds that there were no differences between the conventional and Islamic stock returns, and the calendar anomaly is only existed in the Indonesian stock markets. This implies that although both the conventional and Islamic stock markets have been well integrated in both markets, the stock markets of Malaysia have been more efficient than the Indonesian counterpart. Keywords: anomaly, monthly effect, Islamic capital market, conventional capital market, stock returns, Islamic finance. JEL Classification: C32, C53, E44, G15. 1. Introduction The capital market has been commonly used as one of the indicators of a country's economic progress as it essentially indicates the availability of long-term funding to support potential growth of the business sector. The stock market, in particular plays an important role in the economy since, in addition to its function as a means of funding for companies and other institutions, it also serves as a venue for investment. Similar to other stock markets in the Asian countries, the stock markets in Indonesia and Malaysia have been progressing rapidly in recent decades as reflected by the continuous growth in the value of stocks, significant increase in the stock indices, transaction value and market capitalization, and more diversified investment products. The emergence of Islamic stocks in Malaysia at the end of 1999 and Indonesia in early 2003 was a period of phenomenal growth of stock markets in both countries. Since their inceptions, the Islamic stock markets continue to grow rapidly with increasing public awareness of conducting business and investment activities based on the shari’ah, which is free from the elements of interest (riba), uncertainty (gharar) and gambling (maysir) (Metwally 1997, Yusof and Majid 2007 and 2008, Majid and Kassim 2010, Yusof et al. 2011). Since then, Muslim investors can be more selective in investing their monies by not just looking at the rate of return and investment risk tradeoff, but also considering the permissibility (halal) of investment so as to be in line with their religious belief. Since the launch of the first Islamic stock market in Jordan in 1978, the world financial system experienced a drastic change with the Islamic stock market operating in parallel with the conventional stock market in several countries, including Malaysia and Indonesia. The Islamic finance industry has developed significantly ever since, especially during the 2008 global financial crisis and 2010 European debt crisis (Kassim and Majid 2010). Currently, the industry is no longer confined in the Muslim countries, but also in the western countries. Growing at a doubledigit rate of around 15% per year, the Islamic finance industry has attracted the western countries to also introduce the Islamic stock market as an alternative investment avenue for the investors. 4 Corresponding author
2. Journal of Applied Economic Sciences The presence of the Islamic stock market has enabled the Muslim investors to diversify their investments in financial assets that are permissible based on the Islamic tenets . Despite this, the investors are assumed to be guided by the normal risk-return consideration. According to Sharpe et al. (1999), investments in financial assets are the core activity in the capital market. Investment involves the sacrifice of the certain current value to gain uncertain future values. Investors expect to accumulate positive returns from their investments, considering risksreturns trade-off. Apart from the expectation of positive rate of return, investing in the stock market also has risks that are difficult to predict. In every investment made both in the Islamic and conventional stocks, investors who expect to gain higher returns should bear a higher level of risk. Thus, investors should diversify their investment in order to gain positive return with a minimal level of risks. While investing in stocks, investors consider all available information related to the stock issuers and economy as a whole including published and unpublished information in order to minimize errors in deciding in which stocks they are investing. The right investment decisions also require information about the market and economic conditions at all possible levels, namely nationally, regionally and globally. The extent to which the stock market reacts quickly and accurately to achieve a new equilibrium stock price which fully reflects the information that is available, which is so-called as the efficient stock market (Choudhry 2001, Jogiyanto 2009, Ambarwati 2009, As'adah 2009, Karim and Majid 2009, Al-Jarrah and Basheer 2011, Chia and Khim 2012, Debasish 2012) is also need to be well-understood by the investors so that they could minimize the investment risks and gain maximum diversification benefits. Previous studies on stock market anomalies worldwide documented mixed empirical findings. These studies, however, discovered the existence of anomalies in the stock markets with the findings contradicting the theory of efficient markets. Several similar studies conducted on the Indonesian and Malaysian markets have also discovered the existence of anomalies in the stock markets, but very small number of studies has examined the monthly effect of both conventional and Islamic stock markets. Comparing to the vast-growing of the Islamic stock markets in the countries, number of studies on the Islamic stocks have been far smaller than that of the conventional counterparts. This motivates the present study to fill up the existing researches’ gap by empirically exploring the efficiency of Islamic stock markets in Indonesia and Malaysia, and at the same time, comparing them with the conventional stock markets. With reference to Worthington (2012), this study, specifically, attempts to empirically examine the differences in returns between the conventional and Islamic stocks, and investigate the existence of seasonality in the form of calendar anomalies in both conventional and Islamic stocks in Indonesia and Malaysia. The rest of this study is organized in the following sequences. Section 2 reviews the selected previous literatures on the stock markets and their anomalies. Section 3 highlights the data and research method on which the analysis of the study is based. Section 4 discusses the findings of the study and provides their implications. Finally, Section 5 concludes the paper.
3. Volume XI , Issue 5(43), Fall 2016 Conclusion This study empirically investigated the differences in returns between conventional and Islamic stock markets both in Indonesia and Malaysia. It also attempted to test the monthly effects on stock returns in both markets, covered the period 2004 to 2015. Closing monthly prices of the Jakarta Stock Exchange Index (JKSE), Kuala Lumpur Stock Exchange Index (KLSE), Jakarta Islamic Index (JII), and the FTSE Bursa Malaysia Hijrah Shariah Index (FBMHS) were utilized. An Independent sample of t-test was adopted to explore the differences between the conventional and Islamic stock returns in both countries, while the calendar effects of the stock returns was then tested using the multiple regression with dummy variables. The study documented that there were no statistical differences in returns between the conventional and Islamic stock markets in both countries. This finding implied that the conventional and Islamic stock markets in both countries has been well-integrated, having the similar patterns in the stock prices movements both in conventional and Islamic stocks in both countries. This further implied that investors who investing their monies in both markets would gain similar diversification benefits. As for Muslim investors, buying conventional stocks are against the Islamic injunctions as it is contained elements riba, gharar, and maysir that are totally prohibited in Islam. In addition, the study also found that there were calendar anomalies in both conventional and Islamic stock markets in Indonesia, but not in the neighboring stock markets. Specifically, there were monthly effects of April and July on the returns of the Indonesian conventional stocks, while the monthly effect of April was recorded in the Indonesian Islamic stock market. This implies that although both the conventional and Islamic stock markets have been well integrated in both markets, but the stock markets of Malaysia has been more efficient than the Indonesian stock markets. The findings of the study are based on the methodology outlined above. The differences in returns between Islamic and conventional stock markets and the existence of calendar anomalies on both markets were empirically explored. For a more reliable and robust finding, further studies should also compare the differences in risks between those markets. Additionally, further studies should examine other type of anomalies and at the same time identify the factors contributing the presence of the calendar anomalies in markets. Covering broader range of the Islamic and conventional stock markets worldwide is also recommended. References [1] Al-Jarrah, M.I., and Basheer, A.K. 2011. Turn of the Month Anomaly in Amman Stock Exchange: Evidence and Implications, Journal of Money, Investment and Banking, 21: 1-11. [2] Ambarwati, S.D.A. 2009. Pengujian Week-Four, Monday, Friday dan Earnings Management Effect Terhadap Return Saham, Jurnal Keuangan dan Perbankan, 13(1): 1--14. [3] As’adah, L. 2009. Pengaruh January Effect terhadap Abnormal Return dan Saham pada Jakarta Islamic Indeks. Alfabeta, Yogyakarta. [4] Chia, J.R.C., and Khim, L.S.V. 2012. Month-of-the-Year and Symmetrical Effects in the Nikkei 225, Journal of Business and Management, 3(2): 68-72. [5] Choudhry, T. 2001. Month of the Year Effect and January Effect in Pre-WWI Stock Returns: Evidence from a Non-Linear GARCH Model, International Journal of Finance & Economics, 6(1): 1-11. DOI: 10.1002/ijfe.142 [6] Debasish, S.S.D. 2012. An Empirical Study on Month of the Year Effect in Gas, Oil and Refineries Sectors in Indian Stock Market, International Journal of Management and Strategy (IJMwS), 3: 1-18. [7] Fama, E.F. 1970. Efficient Capital Markets: A Review of Theory and Empirical Work, The Journal of Finance, 25 (2): 383-417. DOI: 10.1111/j.1540-6261.1970.tb00518.x [8] Fama, E.F. 1991. Efficient Capital Markets: II, Journal of Finance, 16(4): 345-354. DOI: 10.1111/j.15406261.1991.tb04636.x [9] Giovanis, E. 2009. The Month of the Year Effect: Evidence from GARCH Models in Fifty-Five Stock Markets, Munich Personal RePEc Archive (MPRA), 1(2): 75-98. [10] Gujarati, D. N. 2009. Basic Econometrics. McGraw-Hill Education. [11] Gultekin, M.N., and Gultekin, N.B. 1983. Stock Market Seasonality: International Evidence, Journal of Financial Economics, 12: 81 - 469. DOI: 10.1016/0304-405X(83)90044-2
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