The profitability of trading strategies from sharia-compliant and conventional banks in the GCC: a comparative study

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hesham I. AlMujamed
Keyword(s):  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Trading Strategy ◽  
Small Sample ◽  
Statistical Analyses ◽  
Trading Strategies ◽  
Accounting Disclosure ◽  
Content Type ◽  
Conventional Banks ◽  
Filter Rules

Purpose The purpose of this research was to examine the effectiveness of filter rules and investigate the weak form of the efficient market hypothesis (EMH) on sample shares of shariah-compliant vs. conventional banks listed on the Gulf Cooperation Council (GCC) stock market. Design/methodology/approach Nine trading filter strategies with different statistical analyses were used as defined in the literature (Fifield et al., 2005; Almujamed et al., 2018). Daily closing equity prices of a sample of twenty shariah-compliant banks and twenty conventional banks were recorded over the 18-year period ending 31 December 2017. Findings Shares of shariah-compliant banks in the GCC were not weak-form efficient since trading based on past information was predictable, profitable and outperformed the corresponding naïve buy-and-hold trading strategy. Shares of conventional GCC banks underperformed Research limitations/implications This paper’s findings should be useful for central banks and capital market authorities in GCC countries for evaluation when considering new regulations or process changes. Limitations include small sample numbers and need for more recent evaluations of accounting disclosure levels. A wider range of data, statistical analyses and other trading strategies is needed. Potential investors (Muslim and non-Muslim), shariah supervisory boards, and preparers of financial statements can benefit from this study. Practical implications The results suggest that selection of trading strategy affects the success of the rule and that mid-sized filters are the best. Originality/value This is an innovative study comparing performance of shariah-compliant and conventional banks under different filter rules.

Are share prices of Gulf corporate council banks predictable? A time-series analysis

2020 ◽  
Vol 21 (1) ◽  
pp. 9-28
Author(s):  
Hesham I. Almujamed
Keyword(s):  
Moving Average ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Accounting Disclosure ◽  
Content Type ◽  
Share Prices ◽  
Market Participants ◽  
Short And Long Term ◽  
Future Evaluation

Purpose This research aimed to evaluate the predictability of moving-average strategies and examined the validity of the weak form of the efficient market hypothesis (EMH) for securities of banks listed in the Gulf Cooperation Council (GCC) stock markets of Bahrain, Kuwait, Qatar and Saudi Arabia. Design/methodology/approach Several statistical analyses and eight moving-average rules were employed where buy and sell signals were produced by comparing a security price’s short- and long-term moving averages. The study covered the daily closing share prices of 40 GCC-listed banks over the 18-year period ending 31 December 2017. Findings The results suggest that securities of banks in the GCC were not weak-form efficient because share prices were predictable. Investors who traded using moving-average strategies could generate higher profits. Analysis of variance found that securities of Kuwaiti banks were the most efficiently priced. Practical implications The findings supported the idea that profitability depended on the moving-average rules and country chosen. Transaction costs did not affect the returns obtained using different trading rules. Originality/value This work facilitates future evaluation of accounting disclosure environments as well as the market efficiency and the performance of securities in the GCC countries. The performance of moving average rules among representative countries that share similar characteristics was analyzed. Different market participants, including investors, analysts and regulators, can benefit from this study for decision-making. These results suggest that new regulations might be drafted that would improve the timeliness of accounting information and the banks’ level of efficiency.

Filter rule performance in an emerging market: evidence from Qatari listed companies

2019 ◽  
Vol 68 (1) ◽  
pp. 231-247 ◽  
Author(s):  
Hesham I. Almujamed
Keyword(s):  
Stock Market ◽  
Emerging Market ◽  
Empirical Finding ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
High Price ◽  
Trading Rules ◽  
Content Type ◽  
Share Prices ◽  
Filter Rules

Purpose The purpose of this paper is to examine the predictability of nine filter rules and test the validity of the weak form of the efficient market hypothesis for the Qatar Stock Exchange (QSE). Design/methodology/approach This study adopts the filter rule strategy employed by Fifield et al. (2005), which suggests that a buy signal occurs when a share’s price increases by X percent from the previous price. This strategy recommends that the share is held until its price declines by X percent from the subsequent high price. Any price changes below X percent are ignored. Additionally, using the theory of weak-form efficiency, this paper suggests that, if a stock market is efficient, an investor cannot achieve superior results by using these trading rules. However, if market inefficiencies are present, profitable opportunities may arise. To this end, the daily closing share prices of 44 companies listed on QSE are explored for 2004–2017. Findings The findings propose that QSE is not weak-form efficient because security prices are predictable. As such, investors who followed filter strategies based on past price information could have made profit. Sectoral analysis findings further suggest that firms in the consumer goods and services, industrial and insurance sectors are most efficiently priced amongst the QSE-traded companies. Practical implications The evidence may be plausibly helpful as supporting market participants and academics that suggest that selecting filter strategy is extremely important for determining the overall profitability of the trading strategy. Originality/value To the best of my knowledge, this is the first study on Qatar that examines the performance of filter rules relative to a passive investor in the context of trading rules with individual share prices for a new stock market. Furthermore, this study adds to the literature through the empirical finding that technical analysts using filter strategies could generate excess returns relative to the buy-and-hold strategy on new emerging stock markets. This study also suggests the levels of transparency and accounting disclosure are limited, which may help Qatari policy makers understand the QSE context. Therefore, it might lead them to introduce regulatory changes to improve the QSE’s efficiency level.

An investigation of time varying market efficiency: evidence from STOXX Europe Christian index

2021 ◽  
Vol 37 (4) ◽  
pp. 631-643
Author(s):  
Tayyaba Yousaf ◽  
Sadia Farooq ◽  
Ahmed Muneeb Mehta
Keyword(s):  
Price Index ◽  
Abnormal Returns ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Time Varying ◽  
Content Type ◽  
Daily Data ◽  
New Information ◽  
Academic Researchers ◽  
The Impact

Purpose The purpose of this study is to investigate whether the STOXX Europe Christian price index (SECI) follows the premise of efficient market hypothesis (EMH). Design/methodology/approach The study used daily data of SECI for the period of 15 years as its launch date i.e. 31 December 2004 to 31 December 2019. Data are analyzed by taking a full-length sample and fixed-length subsample. For subsample, the data are divided into five subsamples of three years each. Subsample analysis is important for analyzing time varying efficiency of the series, as the market is said to follow EMH if it is being efficient throughout the sample. Both type of samples is examined through linear tests including autocorrelations test and variance ratio (VR) test. Findings Tests applied conclude that SECI is weak-form efficient, which means that the prices of the index include all the relevant past information and immediately react to new information. Hence, the investors cannot earn abnormal returns. Originality/value Religion-based indices grasped the attention of investors, policymakers and academic researchers because of increased concern over ethics in business. Though the impact of religion on the economy have been studied in many ways but the efficiency of religion-based indices have been less explored. The current study is primary in its nature as it analysis the efficiency of SECI. This index is important to explore because Christianity is the world’s top religion with 2.3 billion followers around the globe.

Testing the weak form of efficient market hypothesis for socially responsible and Shariah indexes in the USA

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abbas Khan ◽  
Muhammad Yar Khan ◽  
Abdul Qayyum Khan ◽  
Majid Jamal Khan ◽  
Zia Ur Rahman
Keyword(s):  
Stock Prices ◽  
Arima Model ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Future Price ◽  
Short Term ◽  
Socially Responsible ◽  
Efficient Market ◽  
Content Type ◽  
The Us

Purpose By testing the weak form of efficient market hypothesis (EMH) this study aims to forecast the short-term stock prices of the US Dow and Jones environmental socially responsible index (SRI) and Shariah compliance index (SCI). Design/methodology/approach This study checks the validity of the weak form of EMH for both SCI and SRI prices by using different parametric and non-parametric tests, i.e. augmented Dickey-Fuller test, Philip-Perron test, runs test and variance ratio test. If the EMH is invalid, the research further forecasts short-term stock prices by applying autoregressive integrated moving average (ARIMA) model using daily price data from 2010 to 2018. Findings The research confirms that a weak form of EMH is not valid in the US SRI and SCI. The historical data can predict short-term future price movements by using technical ARIMA model. Research limitations/implications This study provides better guidance to risk-averse national and international investors to earn higher returns in the US SRI and SCI. This study can be extended to test the EMH of Islamic equity in the Middle East and North Africa region and other top Islamic indexes in the world. Originality/value This study is a new addition to the existing literature of equity investment and price forecasting by comparing and investigating the market efficiency of two interrelated US SRI and SCI.

FINRA proposes requiring registration of associated persons who develop algorithmic trading strategies

2015 ◽  
Vol 16 (3) ◽  
pp. 33-36
Author(s):  
Janet M. Angstadt ◽  
Michael T. Foley ◽  
Ross Pazzol ◽  
James D. Van De Graaff
Keyword(s):  
Design Methodology ◽  
Trading Strategy ◽  
Trading Strategies ◽  
Algorithmic Trading ◽  
Design Development ◽  
Significant Modification ◽  
Current Form ◽  
Content Type ◽  
Rule Making

Purpose – To analyze FINRA’s proposal that would require registration with FINRA of associated persons of FINRA-member firms who are primarily responsible for the design, development or significant modification of an algorithmic trading strategy. Design/methodology/approach – This article discusses the rationale and details of the proposed requirements. Findings – If adopted in its current form, the proposed rule-making, particularly when combined with the SEC’s proposed amendments to Rule 15b9-1 under the Securities and Exchange Act, would result in many various individuals who currently are not subject to a FINRA registration requirement, to pass a qualification examination and register. Originality/value – This article contains valuable information about important FINRA rule making activity.

scholarly journals Trading strategy using share buybacks: evidence from India

2020 ◽  
Vol 17 (2) ◽  
pp. 169-182
Author(s):  
Asheesh Pandey ◽  
Vandana Bhama ◽  
Amiya Kumar Mohapatra
Keyword(s):  
Insider Trading ◽  
Abnormal Returns ◽  
Significant Risk ◽  
Efficient Market Hypothesis ◽  
Trading Strategy ◽  
Trading Strategies ◽  
New Delhi ◽  
Event Window ◽  
Infrastructural Support ◽  
Available Information

The efficient market hypothesis states that in the efficient markets, participants cannot make extra-normal returns by exploiting any publicly available information. However, traders are constantly looking to exploit publicly available information to generate abnormal returns for themselves and their clients. One such event is share buyback announcement, which traders can utilize to create profitable trading strategies. The authors undertake the present study to examine if share buyback announcements provide profitable trading strategies to traders. Event study methodology has been adopted to analyze buyback announcements by Indian companies from January 2012 to December 2018. Forty-one (41) day window period comprising of 20 days pre-event, an announcement day, and 20 days post-event period is created to analyze the risk-adjusted average abnormal returns. The empirical findings suggest that there are negligible trading opportunities available for investors post announcements. However, significant risk-adjusted returns are found in the pre-event window, indicating that if investors can predict buyback announcements, they may earn extra-normal returns. The study confirms that Indian stock markets are in the semi-strong form of efficiency. The study also provides a profitable trading strategy for investors in the pre-event window. Finally, it also draws the regulators’ attention to see if insider trading could be the reason for abnormal returns in the pre-event window. The authors conclude the results by confirming that Indian markets are semi-strong in market efficiency and by indicating regulatory interventions to control insider trading. AcknowledgementThe infrastructural support provided by FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

Volatility and efficiency of the world crude oil market

2015 ◽  
Vol 31 (1) ◽  
pp. 20-29
Author(s):  
Fawzan Abdul Aziz Al Fawzan
Keyword(s):  
Random Walk ◽  
Crude Oil ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Spot Price ◽  
Conditional Heteroskedasticity ◽  
Efficient Market ◽  
Content Type ◽  
Oil Market ◽  
Autoregressive Conditional Heteroskedasticity

Purpose – The purpose of this paper is to examine volatility and the weak-form efficient market hypothesis (random walk) of world spot crude oil market. Design/methodology/approach – The study uses the generalized autoregressive conditional heteroskedasticity (GARCH-M), exponential generalized autoregressive conditional heteroskedasticity (EGARCH), and threshold GARCH (TGARCH) models. The data are selected from three markets: Dubai Vetch (DV), West Texas Intermediate, and Europe Brent Spot Price. Findings – The weak-form efficient market (random walk) hypothesis was rejected for all estimated GARCH-M, EGARCH, and TGARCH models, indicating that these markets are inefficient and predictable. For daily data, the empirical results showed the presence of asymmetric effects, and the conditional variance process was found to be highly persistent. Originality/value – This study is unique in its nature as it examines three markets on three continents. In addition, one of these markets (DV) was not carried out by the previous study. This work takes into account the market location.

FINRA rule amendment requires registration of associated persons who develop algorithmic trading strategies

2016 ◽  
Vol 17 (3) ◽  
pp. 39-41
Author(s):  
Michael T. Foley ◽  
Janet M. Angstadt ◽  
Ross Pazzol ◽  
James D. Van De Graaff
Keyword(s):  
Design Methodology ◽  
Trading Strategy ◽  
Trading Strategies ◽  
Algorithmic Trading ◽  
Design Development ◽  
Significant Modification ◽  
Content Type ◽  
Rule Making

Purpose To analyze a recently approved FINRA rule amendment that will require registration with FINRA of associated persons of FINRA-member firms who are primarily responsible for the design, development or significant modification of an algorithmic trading strategy. Design/methodology/approach This article discusses the rationale and details of the proposed requirements. Findings The amended FINRA rule, particularly when combined with the SEC’s proposed amendments to Rule 15b9-1 under the Securities and Exchange Act of 1934, will result in many individuals who currently are not subject to a FINRA registration requirement to pass a qualification examination and register. Originality/value This article contains valuable information about important FINRA rule-making activity.

Trading on ETF mispricings

2018 ◽  
Vol 44 (3) ◽  
pp. 357-373 ◽  
Author(s):  
Yvonne Kreis ◽  
Johannes W. Licht
Keyword(s):  
Factor Model ◽  
Small Sample Size ◽  
Detailed Comparison ◽  
Trading Strategy ◽  
Small Sample ◽  
Trading Costs ◽  
Content Type ◽  
Limits To Arbitrage ◽  
Net Returns ◽  
The Impact

Purpose Prior literature has shown deviations between ETF prices and their net-asset-value (NAV) to exist. Fulkerson and Jordan (2013, p. 31) question “if there exists a true tradeable strategy” to exploit these inefficiencies. The purpose of this paper is to implement a profitable daily long-short trading strategy based on price/NAV information and explicitly accounting for trading costs. Design/methodology/approach For a sample of European sector ETFs, the authors analyze gross and net returns of a long-short trading strategy in the capital asset pricing model and Fama-French three-factor model. Findings The authors document positive gross excess return for the long-short trading strategy in all sample periods, but net excess returns to be positive only between 2008 and 2010. Research limitations/implications The results document a profitable long-short trading strategy exploiting deviations between ETF prices and NAV and highlight the impact of trading costs in ETF markets. Due to the limited availability of historic trading cost data, the research uses a comparatively small sample size. Practical implications The net profitability of long-short trading in ETFs is only found in times of high uncertainty in the stock market. Originality/value The inclusion of trading costs enables a detailed comparison between gross and net returns in ETF trading, addressing potential limits to arbitrage.

scholarly journals An Investigation of the Weak Form of the Efficient Markets Hypothesis for the Kuwait Stock Exchange

2018 ◽  
Vol 17 (1) ◽  
pp. 1-28 ◽  
Author(s):  
Hesham I. Almujamed ◽  
Suzanne G. M. Fifield ◽  
David M. Power
Keyword(s):  
Stock Exchange ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Share Price ◽  
Efficient Markets ◽  
Efficient Market ◽  
Emerging Stock Markets ◽  
Kuwait Stock Exchange ◽  
Efficient Markets Hypothesis ◽  
Filter Rules

This article investigates the weak form of the efficient market hypothesis (EMH) for the Kuwait Stock Exchange (KSE). In particular, it tests whether share returns on the KSE exhibit patterns which may be used to predict future share price changes. Ten filter rules are tested on weekly data for 42 firms over the period 1998–2011. The results suggest that the KSE was not weak-form efficient because patterns and trends were present in security prices. In addition, the results are consistent with the substantive literature which has argued that emerging stock markets are informationally inefficient, such as Fifield, Power and Sinclair (2005, 2008) and Xu (2010) and particularly those early studies of Al-Shamali (1989) and Al-Loughani and Moosa (1999) that looked at trading rules for the KSE.

Sign in / Sign up

Export Citation Format

Share Document