Does Islamic Banking Increase the Liquidity of Stocks? An Application to the Kingdom of Bahrain

Posted: 14 Mar 2016

See all articles by Andros Gregoriou

Andros Gregoriou

University of Brighton

Jairaj Gupta

University of Birmingham

Jerome Healy

Hull University Business School (HUBS)

Date Written: March 11, 2016

Abstract

This paper explores liquidity effects following the merger and acquisition between Al Salam Bank Bahrain and a conventional bank post the financial crises. We find evidence of a sustained increase in the liquidity of the stocks as a result of the change from Conventional to Islamic banking. The empirical findings are consistent with the information cost/liquidity hypothesis, which states that investors demand a lower premium for holding stocks with relatively more available information. Our results suggest that Islamic banking stimulates trading and growth of the financial sector following financial turmoil.

Keywords: Islamic banking; Liquidity; Financial Crises; Mergers and Acquisitions

JEL Classification: G10; G14

Suggested Citation

Gregoriou, Andros and Gupta, Jairaj and Healy, Jerome, Does Islamic Banking Increase the Liquidity of Stocks? An Application to the Kingdom of Bahrain (March 11, 2016). Journal of International Financial Markets, Institutions and Money, 2016, Available at SSRN: https://ssrn.com/abstract=2747082

Andros Gregoriou

University of Brighton ( email )

Brighton
Brighton, BN2 4AT
United Kingdom

Jairaj Gupta (Contact Author)

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom
00-44-7795904913 (Phone)

Jerome Healy

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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