Information Distribution and Informed Trading in Mixed and Islamic Capital Markets
Abstract
The correlation between volume and frequency with return volatility can explicate the information distribution process and informed traders' transaction behavior in a stock market. In this study, the Indonesian stock market represents the mixed market, while the Saudi Arabian stock market represents the Islamic market. We find that 94% and 96% of sharia-compliant stocks in Indonesia and Saudi Arabia follow the Mixture of Distribution Hypothesis (MDH). Consequently, we may conclude that sharia-compliant stocks in both markets are informationally efficient. However, we find that informed traders tend to behave differently in both markets. In the Indonesian market, informed traders exhibit competitive behavior in 95% of shariacompliant stocks and strategic transaction behavior in only 5% of the stocks. In contrast, in the Saudi Arabian market, we find that informed traders exhibit competitive behavior in only 38% of the stocks and strategic behavior in 62% of the stocks. The findings suggest that social and religious contexts may affect market participants' behavior.
References
Arago, V., & Nieto, L. (2005). Heteroskedasticity in the returns of the main world stock exchange indices: volume versus GARCH effects. Journal of International Financial Markets, Institutions, & Money & Money, 15, 271–284. doi: https://doi.org/10.1016/j.intfin.2004.06.001
Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 31, 307–327.
Bose, S., & Rahman, H. (2015). Examining the relationship between stock return volatility and trading volume: new evidence from an emerging economy. Applied Economics, 47(18), 1899–1908. doi: https://doi.org/10.1080/00036846.2014.1002885
Canepa, A., & Ibnrubbian, A. (2014). Does faith move stock markets? Evidence from Saudi Arabia. Quarterly Review of Economics and Finance, 54(4), 538–550. doi: https://doi.org/10.1016/j.qref.2014.04.002
Chan, K., & Fong, W. (2000). Trade size , order imbalance, and the volatility-volume relation. Journal of Financial Economics, 57, 247–273.
Clark, P. K. (1973). A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices. Econometrica, 41(1), 135–155.
Copeland, T. E. (1976). A Model of Asset Trading Under the Assumption of Sequential Information Arrival. The Journal of Finance, 31(4), 1149–1168.
Darrat, A. F., Rahman, S., & Zhong, M. (2003). Intraday trading volume and return volatility of the DJIA stocks : A note. Journal of Banking and Finance, 27, 2035–2043. https://doi.org/10.1016/S0378-4266(02)00321-7
Easley, D., Kiefer, N. M., & O’Hara, M. (1997). One Day in the Life of a Very Common Stock. The Review of Financial Studies, 10(3), 805–835.
Ekaputra, I. A. (2014). Impact of foreign and domestic order imbalances on return and volatility-volume relation. Asian Academy of Management Journal of Accounting and Finance, 10(1), 1–19.
Ekaputra, I. A., & Asikin, E. S. (2012). Impact of tick size reduction on small caps price efficiency and execution cost on the Indonesia stock exchange. Asian Academy of Management Journal of Accounting and Finance, 8(SUPPL.), 1–12.
Fama, E. (1970). Efficient capital markets : A Review of theory and empirical work. Journal of Finance, 25(2), 383–417.
Harris, L. (1987). Transaction Data Tests of the Mixture of Distributions. Journal of Financial and Quantitative Analysis, 22(2), 127–141.
Hong, H., & Rady, S. (2002). Strategic trading and learning about liquidity. Journal of Financial Markets, 5, 419–450.
Jones, C. M., Kaul, G., & Lipson, M. L. (1994). Transactions, Volume, and Volatility. Review of Financial Studies, 7(4), 631–651.
Karpoff, J. M. (1987). The Relation Between Price Changes and Trading Volume. The Journal of Financial and Quantitative Analysis, 22(1), 109–126.
Lamoureux, C. G., & Lastrapes, W. D. (1994). Endogenous Trading Volume and Momentum in Stock-Return Volatility. Journal of Business & Economic Statistics, 12(2), 253–260.
MSCI. (2018a). MSCI Arabian Markets Islamic Index. Fact sheet. Retrieved from http://www.msci.com/search.
MSCI. (2018b). MSCI Indonesia Islamic Index (USD). Fact Sheet. Retrieved from http://www.msci.com/search.
Omran, M. F., & McKenzie, E. (2000). Heteroscedasticity in stock returns data revisited: volume versus GARCH effects. Applied Financial Economics, 10(5), 553–560. doi: https://doi.org/10.1080/096031000416433
Purwono, Y., Ekaputra, I. A., & Husodo, Z. A. (2018). Estimation of Dynamic Mixed Hitting Time Model Using Characteristic Function Based Moments. Computational Economics, 51(2), 295–321. doi: https://doi.org/10.1007/s10614-017-9692-6
Pyun, C. S., Lee, S. Y., & Nam, K. (2000). Volatility and information flows in emerging equity market: A case of the Korean Stock Exchange. International Review of Financial Analysis, 9(4), 405–420. doi: https://doi.org/10.1016/S1057-5219(00)00037-5
Ratsimalahelo, Z. (2005). Generalised Wald Type Test of Nonlinear Restrictions. IFAC Proceedings Volumes, 38(1), 100-105. doi: https://doi.org/10.3182/20050703-6-CZ-1902.02252
Sensoy, A., Aras, G., & Hacihasanoglu, E. (2015). Predictability dynamics of Islamic and conventional equity markets. North American Journal of Economics and Finance, 31, 222–248. doi: https://doi.org/10.1016/j.najef.2014.12.001
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
