The Effect of Implicit Market Barriers on Stock Trading and Liquidity
M. Kabir Hassan and
William J. Hippler
No 2018-WP-02, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute
We compare the performance of Islamic and conventional stock returns in Saudi Arabia in order to determine whether the Saudi market exhibits characteristics that are consistent with segmented markets and investor recognition effects. We sample the daily stock returns of all Saudi firms from September 2002 to 2015 and calculate important measures, including idiosyncratic volatility (Ang et al, 2006), market integration (Pukthuanthong and Roll, 2009), systematic turnover (Loughran and Schultz, 2005), and stock turnover and liquidity (Amihud, 2002). Integration tests report that Islamic stocks are more sensitive to changes in global and local macroeconomic variables than conventional stocks, supporting the hypothesis that the Islamic and conventional stock markets are segmented in Saudi Arabia. In addition, our results show that Islamic stocks have a broader investor base, lower idiosyncratic risk, higher systematic turnover, and are more liquid than conventional stocks, which support the investor recognition hypothesis. Our results provide new evidence on asset pricing in emerging markets, the evolving Islamic financial markets, and the potential impact of other implicit market barriers on global financial markets.
Keywords: Segmented markets; Islamic finance; Emerging markets; Asset pricing; Investor recognition (search for similar items in EconPapers)
JEL-codes: G1 G2 F3 P5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara and nep-mst
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