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 Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (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. The study finds that Bursa uses two thresholds to measure shari’ah non-compliance whereas DSE and CSE use single benchmark, 5% and 4% respectively. For financial screening, DSE uses market value of equity as numerator whereas CSE and Bursa use total assets as numerator. Because of the differences, one company may be included in Shari’ah Index in Bangladesh, but not in Malaysia and vice versa.

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

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