Does Islamic banking increase the liquidity of stocks? An application to the Kingdom of Bahrain

Andros Gregoriou, Jairaj Gupta and Jerome Healy

Journal of International Financial Markets, Institutions and Money, 2016, vol. 42, issue C, 132-138

Abstract: This paper explores liquidity effects following the merger and acquisition between Al Salam Bank Bahrain and a conventional bank post the financial crises. We find evidence of a sustained increase in the liquidity of the stocks as a result of the change from conventional to Islamic banking. The empirical findings are consistent with the information cost/liquidity hypothesis, which states that investors demand a lower premium for holding stocks with relatively more available information. Our results suggest that Islamic banking stimulates trading and growth of the financial sector following financial turmoil.

Keywords: Islamic banking; Liquidity; Financial crises; Mergers and acquisitions (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:42:y:2016:i:c:p:132-138

DOI: 10.1016/j.intfin.2016.03.001

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