Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Stage-I Shariah compliant Macaulay’s duration model testing

Stage-I Shariah compliant Macaulay’s duration model testing The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.Design/methodology/approachThe research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).FindingsRegressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.Practical implicationsSharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.Originality/valueSharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Stage-I Shariah compliant Macaulay’s duration model testing

Download PDF
24 pages

Loading next page...
 
/lp/emerald-publishing/stage-i-shariah-compliant-macaulay-s-duration-model-testing-hE74iRwxgt

References (77)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-05-2020-0158
Publisher site
See Article on Publisher Site

Abstract

The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.Design/methodology/approachThe research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).FindingsRegressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.Practical implicationsSharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.Originality/valueSharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.

Journal

Journal of Islamic Accounting and Business Research – Emerald Publishing

Published: Sep 3, 2021

Keywords: Islamic banks; Earning assets; Return bearing liabilities; Duration model; Maturity gap risk management model testing; C32; C33; C34; G21; G28; P43

There are no references for this article.