Does Islamic banking increase the liquidity of stocks?: An application to the Kingdom of Bahrain

Andros Gregoriou; Jairaj Gupta; Jerome Healy

doi:10.1016/j.intfin.2016.03.001

Does Islamic banking increase the liquidity of stocks? An application to the Kingdom of Bahrain

Andros Gregoriou, Jairaj Gupta, Jerome Healy

Finance

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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.

Original language	English
Pages (from-to)	132-138
Journal	Journal of International Financial Markets, Institutions and Money
Volume	42
Early online date	11 Mar 2016
DOIs	https://doi.org/10.1016/j.intfin.2016.03.001
Publication status	Published - May 2016

Keywords

Islamic banking
Liquidity
Financial crises
Mergers and acquisitions

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Gregoriou_et_al_Islamic_banking_Int_Fin_Markets_Inst_and_Money_2016Accepted author manuscript, 132 KBLicence: Creative Commons: Attribution-NonCommercial-NoDerivs (CC BY-NC-ND)

Cite this

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title = "Does Islamic banking increase the liquidity of stocks?: An application to the Kingdom of Bahrain",

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.",

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AB - 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.

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Does Islamic banking increase the liquidity of stocks? An application to the Kingdom of Bahrain

Abstract

Keywords

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