Moral Behavior in Stock Markets: Islamic Finance and Socially Responsible Investment

ECONOMICS AND MORALITY: ANTHROPOLOGICAL APPROACHES, K. E. Browne, B. L. Milgram, eds., pp. 233-255, Lanham: AltaMira Press, Rowman & Littlefield Publishers, 2008

30 Pages Posted: 7 Jul 2008

See all articles by Aaron Z. Pitluck

Aaron Z. Pitluck

Illinois State University - Sociology

Date Written: March 1, 2008

Abstract

This paper addresses the puzzle of why the inclusion of non-financial social justice or religious criteria by professional fund managers has been so popular in Malaysia and yet has had to date relatively little influence in the United States stock market. Drawing from over 125 ethnographic interviews with financial workers in Malaysia, this paper argues that moral investment behavior in stock markets is shaped primarily by 'market structure' rather than by 'mandates.' In both countries mandates are a weak form of social control of fund manager's behavior. This is because mandates are not principal-agent contracts but are primarily marketing exercises and cultural tools. Social investing in the United States is weak because it relies solely on mandates to communicate clients' ethical desires to their fund managers. Islamic and Ethical finance in Malaysia is strong because Islamic social movements have reformed the Malaysian stock market's structure. Specifically, a uniform interpretation of Islamic investing was institutionalized with the creation of a nearly-unique quasi-governmental body. As a consequence, Islamic principles systematically influence the behavior of corporations listed in Malaysia, at present narrowly, but with the potential for wider influence in future. The paper closes with implications for social investment in the United States.

Keywords: Investor Behavior, Ethics, Malaysia, United States, Islamic Finance, Socially Responsible Investment

JEL Classification: A13, A14, G11, G20, P52, Z13

Suggested Citation

Pitluck, Aaron Z., Moral Behavior in Stock Markets: Islamic Finance and Socially Responsible Investment (March 1, 2008). ECONOMICS AND MORALITY: ANTHROPOLOGICAL APPROACHES, K. E. Browne, B. L. Milgram, eds., pp. 233-255, Lanham: AltaMira Press, Rowman & Littlefield Publishers, 2008 , Available at SSRN: https://ssrn.com/abstract=1156346

Aaron Z. Pitluck (Contact Author)

Illinois State University - Sociology ( email )

Campus Box 4660
Normal, IL 61790-4660
United States

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