Covid-19 and informational efficiency in Asian emerging markets: a comparative study of conventional and Shariah-compliant stocks

Abstract

Purpose This study aims to provide a comparative insight into the level of informational efficiency and irregularities of Shariah-compliant stocks and conventional stocks in three emerging markets, namely, China, Malaysia and Pakistan. The empirical evidence is provided for pre-crisis and crisis periods caused by the Covid-19 pandemic. Design/methodology/approach Informational efficiency is measured using the variance ratio (VR) Test developed by Kim (2006). The Approximate Entropy (ApEn) Metrics is used to investigate the level of irregularities in stock prices caused by the pandemic. Findings All the three emerging markets in the sample are not immune to the crisis caused by Covid-19 pandemic. The level of informational efficiency of both the Shariah-compliant and conventional stock is affected by the crisis. However, the former exhibits relatively high level of informational efficiency and stability in returns as compared to more volatility of conventional stocks. Practical implications This study provides market agents and policy makers with a robust assessment of the impact of the Covid-19 pandemic on informational efficiency of Shariah-compliant and conventional stocks. Relatively high informational efficiency of Shariah-compliant stocks indicates that they are more transparent and that investors can trust the Shariah-compliant stocks more. This higher level of transparency and trust leads to more steady returns and lower levels of risk even during turbulent time like Covid-19. Investors can gain superior returns by conducting fundamental analysis and investing in index funds. Originality/value To the best of the authors’ knowledge, this is the first study that highlights the difference in informational efficiency of conventional stocks and Shariah-compliant stocks in the crisis period caused by Covid-19. Unlike previous studies, this study uses firm level data which enables firm-wise assessment of informational efficiency.

Economic Shocks and Perceptions of Efficiency Changes: The Cases of Lithuania and Latvia

“…Impact of the quarantine regime on the level of investments according to the sector. References (Adnan and Hasan 2021;Ali et al 2022;Asteriou et al 2023;Clark et al 2021;González and Gallizo 2021;Hasnaoui et al 2021;Huynh et al 2021;Kurien ė 2022;Liedtke 2021;Liu et al 2022;Lutfi et al 2022;Nguyen and Vu 2021;Nikolajenko et al 2021;Pileckait ė and Subačien ė 2023;Pourmansouri et al 2022;Rahman et al 2022;Ramachandran et al 2021;Raza et al 2022;Senkus et al 2022;Shabir et al 2023;Simoens and Vander Vennet 2022;S ūdži ūt ė and Jakubavičius 2022;Toth et al 2022;Wulandari et al 2022;Zheng and Zhang 2020;Žinyt ė and Jurkonien ė 2023) are cited in the supplementary materials.…”

Political risk and portfolio performance: implications for Shariah-compliant investors

“…A recent study by Boudt et al (2019a) compared the financial performance of CEPs and SCEPs in macrofinancial regimes and found that both these portfolios have different exposure to different regimes. Similarly, studies conducted by Hassan et al (2021) and Raza et al (2022) search for the safe haven properties of these indices in the Global Financial Crisis and Global Pandemic Crisis caused by To the best of our knowledge, Shugaa and Masih (2014) and Ahmed (2018) are the only studies on the effect of political risk on the performance of internationally diversified SCEPs. The former focuses on the effect of spring uprisings on the volatility of SCEPs and CEPs in the MENA region, while the latter aims at the differential impact of political risk on both groups of portfolios.…”

“…A recent study by Boudt et al (2019a) compared the financial performance of CEPs and SCEPs in macro-financial regimes and found that both these portfolios have different exposure to different regimes. Similarly, studies conducted by Hassan et al (2021) and Raza et al (2022) search for the safe haven properties of these indices in the Global Financial Crisis and Global Pandemic Crisis caused by Covid-19.…”

Three Major Crises and Asian Emerging Market Informational Efficiency: A Case of Pakistan Stock Exchange-100 Index

“…In efficient markets predicting stock prices using merely historical data is a cumbersome task. The EMH is a well-established concept and is widely discussed by academic literature, and its applications are evaluated globally by several studies in different time spans (see, e.g., Kim and Shamsuddin 2008;Lee 2012;Raza et al 2022). The term market efficiency is perceived in different contexts.…”

“…The term market efficiency is perceived in different contexts. However, this study refers to the informational efficiency of the stock market, which is concerned with the degree of information reflected in stock prices (Raza et al 2022).…”