A Comparative Study of Stock Screening Methodologies in Stock Exchanges of Bangladesh and Malaysia and Lessons to Be Learnt

Abstract

The study aims to compare and critically evaluate the stock screening practices between Bangladesh and Malaysia. The specific objectives determined to fulfill the aims are: (i) To review some of the Islamic equity market norms along with juristic views (ii) To review the prevalent practices of stock screening methods used by international index providers (iii) To evaluate critically and compare the stock screening methodology used by DSE, CSE and Bursa Malaysia. The study is descriptive in nature. Secondary data is utilized and collected from the books, standards, journal articles and relevant publications. AAOIFI standards, OIC Fiqh Academy resolutions etc. are referenced as needed.

DSE, CSE and Bursa differs in formulating ratios, denominators, numerators and in determining benchmark. A stock can be categorized as Shari’ah compliant in Bursa, but may be non-Shari’ah compliant in DSE, and CSE. Though, there is a central authority in Malaysia, it follows the same guidelines throughout the country, but this is not the case for Bangladesh. A stock may be considered Shari’ah compliant in DSE but not in CSE and vice versa. After analyzing, it is clear that DSE and CSE may improve their ratios and it is also advisable to use single methodology at least in one jurisdictions to avoid the confusions among masses. The findings of the study will help the authority (BSEC) to look at the deep insight of the issue and update the current criteria.

Keywords: Islamic Stock Indices, Shari’ah Screening, Islamic Capital Market, Ethical Investing, DSE, CSE, Bursa Malaysia

JEL Classification: G11, G15, K22, Z12, O57