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Article
Publication date: 28 January 2020

Fahad Almudhaf and Bader Alhashel

This paper aims to investigate the pricing efficiency of Saudi Sharia-compliant (i.e. Islamic) exchange-traded funds (ETFs).

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Abstract

Purpose

This paper aims to investigate the pricing efficiency of Saudi Sharia-compliant (i.e. Islamic) exchange-traded funds (ETFs).

Design/methodology/approach

The paper adheres to a positivist research philosophy with a deductive research approach where data is collected, analyzed and interpreted to examine a hypothesis. Ordinary least squares (OLS) regressions are applied to investigate pricing efficiency and persistence.

Findings

The results show that Saudi ETFs do not currently offer proper diversification for investors, possibly due to their low trading volumes and the delays of market prices in reflecting net asset value (NAV). On average, ETFs trade at a premium to their NAVs. Moreover, the authors find that the deviations of ETF prices from their NAVs (i.e. premiums or discounts) do not disappear in one day. The results reveal a significant positive relationship between the trading volume of Saudi ETFs and volatility, a significant positive correlation between ETF returns and contemporaneous deviations and a significant negative relationship between returns and lagged deviations. These findings can be interpreted as evidence against the market efficiency of Saudi ETFs.

Practical implications

Individual and institutional investors can use Saudi ETFs, especially as their efficiency improves with increased trading volume (liquidity). Saudi regulators must increase their efforts to educate market participants and expand the availability of information to enhance transparency and awareness of the benefits of investing in ETFs, which will positively affect liquidity and pricing efficiency in the future.

Originality/value

This paper is the first to perform empirical tests on Saudi ETFs. Saudi Arabia deserves further attention because it is the most significant stock market in the Gulf Cooperation Council and only recently allowed foreigners to participate.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 5 March 2018

Fahad Almudhaf

The purpose of this paper is to test for the presence of bubbles in the US lodging/hotel real estate investment trust (REIT) subsector from 1994 to 2016. It also compares the…

652

Abstract

Purpose

The purpose of this paper is to test for the presence of bubbles in the US lodging/hotel real estate investment trust (REIT) subsector from 1994 to 2016. It also compares the profitability of a buy-and-hold strategy with several technical trading rules when applied to lodging REITs.

Design/methodology/approach

To investigate speculative bubbles, the sequential right-sided unit root tests of Phillips, Shi and Yu (2015a, b) are used.

Findings

The results confirm the possibility of the existence of multiple bubbles and explosive behavior in prices and the price-dividend ratio. One of the detected bubbles coincides with the financial economic crisis of 2008 using both measures. In addition, several technical rules are found to be superior to a naïve buy-and-hold strategy even after adjusting for risk.

Practical implications

These findings will be of interest to policy makers, who can use such models as an early alert to take anticipative action to avoid bursting of bubbles and consequent negative effects on the economy. The findings also provide important information to investors attempting to devise trading rules that utilize the signals from bubble detection, as well as to hotel executives devising policies aimed at reducing risk and creating more firm value to maximize shareholder wealth. Moreover, valuation and bubbles are important to lenders and creditors who use assets as collaterals for financing hotel REITs.

Originality/value

Hotels are a unique hybrid of retail and housing that combine operating business with real estate. This paper is the first to investigate speculative bubbles in lodging REITs.

Details

Journal of Property Investment & Finance, vol. 36 no. 2
Type: Research Article
ISSN: 1463-578X

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