The Effect of Shari’ah Compliance Announcements on Stock Returns in Malaysia

Authors

  • Nor Suhaira Jamil Politeknik Sultan Idris Shah
  • Hamizah Hassan Universiti Teknologi MARA, Kedah Branch
  • Imbarine Bujang Universiti Teknologi MARA, Sabah Branch

DOI:

https://doi.org/10.33736/ijbs.3248.2020

Keywords:

Shari’ah compliance, Shari’ah screening methodology, Inclusion and removal

Abstract

There are increasing demands and interests in Shari’ah compliant stocks in Malaysia. The identification of Shari’ah compliant stocks is known as Shari’ah screening, which is announced to the public twice a year. Hence, the objective of this study is to investigate whether the announcements provide valuable information and the impact of such announcements on stock returns. This study applies market model to estimate the stock returns. Alternative hypotheses that are being tested are the inclusion (removal) of stocks in (from) the Shari’ah Compliant List give a significant effect on the stock Cumulative Average Abnormal Return (CAAR). Employing the event study methodology in years 2007 –2015, this study provides unambiguous evidence that the inclusion of a stock in the Shari’ah Compliant List has increased the price that lead positive stocks returns 1 day within the announcement date. Meanwhile, the removal from the list results a negative stock returns due to the declined of the stock price. As such, the announcements of Shari’ah Compliant List do carry informational value and have significant effect on the stock returns in Malaysian capital market. Shari’ah compliance announcement is significant especially to the Muslim investors to assist them avoiding prohibited investment activities. The present study has significantly contributed to the Malaysian Efficient Market Hypothesis as well as to the practical implication for the companies in avoiding with haram activities.

References

Azmi, A., Non, N., & Ab Aziz, N. (2017). Challenges to Shariah equity screening, from Shariah scholars’ perspective. International Journal of Islamic and Middle Eastern Finance and Management, 10(2), 229–242.

Bashir, M. S., Rasyidah, W., & Nawang, W. (2011). Islamic and conventional unit trusts in Malaysia : A performance comparison. Journal of Islamic Economics, Banking and Finance, 7(4), 10–24.

Binder, J. J. (1998). The event study methodology since 1969. Review of Quantitative Finance and Accounting, 11, 111–137.

Boehmer, E., Masumeci, J., & Poulsen, A. B. (1991). Event-study methodology under conditions of event-induced variance. Journal of Financial Economics, 30(2), 253–272.

Chin, W. C. (2008). A sectoral efficiency analysis of Malaysian stock exchange under structural break. American Journal of Applied Sciences, 5(10), 1291–1295.

Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.

Bursa Malaysia. (2016). FTSE Bursa Malaysia Indices. Retrieved from http://www.bursamalaysia.com/market/products-services/indices/ftse-bursa-malaysia indices/overview/

Habib, M., & Islam, K. (2014). Performance of Shariah compliant index: A comparative study of India and Malaysia. International Journal of Interdisciplinary Studies, 1(6), 231–240.

Jagongo, A., & Mutswenje, V. S. (2014). A survey of the factors influencing investment decisions : The case of individual investors at the NSE. International Journal of Humanities and Social Science, 4(4), 92–102.

Kr, K. R., & Fu, M. (2014). Does Shariah compliant stocks perform better than the conventional stocks? A comparative study stocks listed on the Australian stock exchange. Asian Journal of Finance & Accounting, 6(2), 155.

Securities Commission. (2016). List of Shariah-compliant Securities by SC’s Shariah Advisory Council. Retrieved from https://www.sc.com.my/data-statistics/list-of-shariahcompliant-securities-by-scs-shariah-advisory-council/

MacKinley, C. (1997). Event studies in economics and finance. Journal of Economic Literature, XXXV(1), 13–39.

Malkiel, B. G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59–82.

Mcgowan, C. B., & Muhammad, J. (2010). The theoretical impact of the listing of Syariah approved stocks on stock price and trading volume. International Journal of Business and Economics Research Journal, 9(3), 11–20.

Muhammad, N. M. N., & Rahman, N. M. N. A. (2010). Efficient market hypothesis and market anomaly: Evidence from day-of-the week effect of Malaysian exchange. International Journal of Economics & Finance, 2(2), 35–42.

Norman, N., Almsafir, M. K., & Smadi, A. (2013). Comparative study of conventional and Shariah-based unit trust funds performance of public mutual berhad. Australian Journal of Basic and Applied Sciences, 7(March), 354–363.

Malaysian International Islamic Financial Centre. (2013). Shariah screening methodology: Adopting a two-tier quantitative approch. Insights, Bank Negara Malaysia, 1–4.

Pagan, A. (1996). The econometrics of financial markets. Journal of Empirical Finance, 3(1), 15-102

Sadeghi, M. (2008). Financial performance of Shariah-compliant investment : Evidence from Malaysian stock market. International Research Journal of Finance and Economics, 20(20), 15–26.

Sennanye, L. E. (2015). The impact of Black Economic Empowerment transaction announcements on share price performance of JSE listed mining companies (Master dissertation,

University of Pretoria, South Africa). Retrieved from https://repository.up.ac.za/bitstream/handle/2263/45030/Sennanye_Impact_2014.pdf?sequence=1&isAllowed=y

Serra, A. P. (2002). Event Study Tests: A brief survey. FEP Working Papers 117, Universidade do Porto, Faculdade de Economia do Porto.

Sharif, T., Purohit, H., & Pillai, R. (2015). Analysis of factors affecting share prices: The case of Bahrain stock exchange. International Journal of Economics and Finance, 7(3), 207–216.

Soon, L. P., & Abdul-Rahim, R. (2016). Efficiency of Malaysian stock market: A revisit based on analysts’ recommendations. Malaysian Journal of Society and Space , 2(2), 1–14.

Tajuddin, A. H., Abdullah, N. A. H., & Taufil Mohd, K. N. (2018). Shariah-compliant status and IPO oversubscriptions. Journal of Islamic Accounting and Business Research, 9(4), 531–548.

Tuyon, J., & Ahmad, Z. (2016). Behavioural finance perspectives on Malaysian stock market efficiency. Borsa Istanbul Review, 16(1), 43–61.

Wee, C. P. (2012). Analysis of Syariah quantitative screening norms among. Investment Management and Finnacial Innovation, 9(2), 69–80.

Yazi, E., Morni, F., & Saw, I. S. (2015). The effects of Shariah compliance announcement towards stock price changes in Malaysia. Journal of Economics, Business and Management, 3(11), 1019–1023.

Downloads

Published

2020-03-26

How to Cite

Nor Suhaira Jamil, Hamizah Hassan, & Imbarine Bujang. (2020). The Effect of Shari’ah Compliance Announcements on Stock Returns in Malaysia. International Journal of Business and Society, 21(1), 217–233. https://doi.org/10.33736/ijbs.3248.2020