The Effect of Implicit Market Barriers on Stock Trading and Liquidity

Networks Financial Institute Working Paper 2018-WP-02

46 Pages Posted: 15 Feb 2018

See all articles by Asem Alhomaidi

Asem Alhomaidi

University of New Orleans - College of Business Administration - Department of Economics and Finance

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Will Hippler

University of La Verne

Date Written: January 23, 2018

Abstract

We compare the performance of Islamic and conventional stock returns in Saudi Arabia in order to determine whether the Saudi market exhibits characteristics that are consistent with segmented markets and investor recognition effects. We sample the daily stock returns of all Saudi firms from September 2002 to 2015 and calculate important measures, including idiosyncratic volatility, market integration, systematic turnover, and stock turnover and liquidity. Integration tests report that Islamic stocks are more sensitive to changes in global and local macroeconomic variables than conventional stocks, supporting the hypothesis that the Islamic and conventional stock markets are segmented in Saudi Arabia. In addition, our results show that Islamic stocks have a broader investor base, lower idiosyncratic risk, higher systematic turnover, and are more liquid than conventional stocks, which support the investor recognition hypothesis. Our results provide new evidence on asset pricing in emerging markets, the evolving Islamic financial markets, and the potential impact of other implicit market barriers on global financial markets.

Keywords: Segmented markets, Islamic finance, Emerging markets, Asset pricing, Investor recognition

JEL Classification: G1, G2, F3, P5

Suggested Citation

Alhomaidi, Asem and Hassan, M. Kabir and Hippler, William, The Effect of Implicit Market Barriers on Stock Trading and Liquidity (January 23, 2018). Networks Financial Institute Working Paper 2018-WP-02, Available at SSRN: https://ssrn.com/abstract=3118021 or http://dx.doi.org/10.2139/ssrn.3118021

Asem Alhomaidi (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

William Hippler

University of La Verne ( email )

1950 Third Street
La Verne, CA 91750
United States

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