American J. of Finance and Accounting (3 papers in press)
A Two-stage Parametric Stochastic Frontier Analysis (SFA) of the Efficiency Performance of Shariah Compliant Banks: A Global Evidence
by Ahmad Abu-Alkheil, Ghadeer Khartabiel, Mohd Dali Nuradli Ridzwan Shah
Abstract: The stochastic frontier approach (SFA) is used to calculate the technical, pure technical, allocative, cost and profit, and scale efficiencies for 32 independent fully- fledged Islamic banks (IBs) from Asia, the Middle East, Gulf region, and Europe. Utilizing the ordinary least squares (OLS) analysis over the period from 2004 to 2014, the paper also examines the bank-specific variables that may explain the sources of banks inefficiencies. Estimates show that most of the IBs appear to be relatively cost and profit inefficient which is largely technical in nature and to some extent, caused by the incorrect choices of inputs price mix. Poor management and inappropriate scale size of operations are found to be the main drivers of IBs technical inefficiency. The results demonstrate that large IBs are unable to benefit from economies of scale and thus, most of them experienced decreasing returns to scale. As compared to IBs from Asia, the Middle East, and the Gulf region, IBs from U.K. and Turkey are surprisingly relatively technically more efficient and generally have a slightly superior performance in generating profits rather than in controlling cost. Regardless of the banks location, the findings suggest that banks that are more technically efficient are most likely larger in size with low market-share, highly profitable, well-capitalized, supply more lending, and are less leveraged. However, the global crisis of 2007 does not significantly differently affect the IBs performance as it affects all globally active banks alike.
Keywords: Efficiency; Financial crisis; Islamic banks; Parametric analysis.
Copula model dependency between oil prices and stock markets: Evidence from Tunisia and Egypt
by Wajdi Hamma, Ahmed Ghorbel, Anis Jarboui
Abstract: In this work, our objective is to study in a first step the relationships between oil price and stock market indices in Tunisia and Egypt using copulas, and then in a second step to analyze the optimal weights and hedge ratio for building optimal portfolios to minimize the exposurernto risk from oil price changes. The model is implemented with an ARMA-GARCH-GPD using daily observations for the 02 January, 1998 to 31 December, 2013 period for the marginal distribution and the extreme value copula for the joint distribution, which allow taking into account non-linear dependence, tails behavior and their development over time.rnVarious copula functions are used to model the dependence structure between oil prices and stock markets of Tunisia and Egypt. Empirical results provide evidence of significant and symmetric tail dependence for international oil prices and stock markets. In the other hand, volatility for this stock markets registered record levels due to the increase of the degree of oilrnprices. However, Dependence structure changed over time, indicating that Hedging Effectiveness and hedge ratio for the oil asset in the hedged portfolios varied over time.
Keywords: Dependence structure; Stock market; Oil prices; Copulas; Hedging strategy.
Earnings-consumption Betas and Stock Valuation
by Claude Bergeron, Jean-Pierre Gueyie, Komlan Sedzro
Abstract: This paper integrates the long-run covariance between aggregate consumption and firm earnings into the stock valuation process. After assuming that firms adjust their dividend payments toward a target dividend payout ratio, we use the intertemporal framework of the consumption capital asset pricing model (Consumption-CAPM) to explore the effect of systematic earnings risks on intrinsic stock values. Our main results show that the equilibrium price of a stock is positively related to its long-run earnings growth rate, and negatively related to its earnings-consumption beta, obtained from its long-run covariance between earnings growth and aggregate consumption growth. This suggests that long-run risk measured with earnings affects the theoretical value of a firm. Overall, our work suggests that the long-run concept of risk, using accounting earnings, represents an appropriate parameter for estimating the equity value of a firm.
Keywords: Stock valuation; Accounting beta; Intertemporal model; Long-run risk; Consumption-CAPM.