Stage-I Shariah compliant Macaulay’s duration model testing Repository

Stage-I Shariah compliant Macaulay’s duration model testing

Syed Alamdar Ali Shah, - and Raditya Sukmana, - and Bayu Arie Fianto, - (2021) Stage-I Shariah compliant Macaulay’s duration model testing. Journal of Islamic Accounting and Business Research, 12 (7). pp. 941-964. ISSN 1759-0817, eISSN: 1759-0825

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Official URL: https://www.emerald.com/insight/content/doi/10.110...

Abstract

Purpose The purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks. Design/methodology/approach The research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM). Findings Regressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations. Practical implications Sharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run. Originality/value Sharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.

Item Type:

Article

Uncontrolled Keywords:

Islamic banks, Earning assets, Return bearing liabilities, Duration model, Maturity gap risk management model testing

Subjects:

H Social Sciences
H Social Sciences > HG Finance

Divisions:

04. Fakultas Ekonomi dan Bisnis > Ekonomi Syariah

Creators: