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Article
Publication date: 24 August 2020

Hechem Ajmi and Nadia Arfaoui

This paper aims to investigate the effect of the political risk on Bitcoin return and volatility during the 2016 US pre-election and post-election periods.

386

Abstract

Purpose

This paper aims to investigate the effect of the political risk on Bitcoin return and volatility during the 2016 US pre-election and post-election periods.

Design/methodology/approach

A daily composite political risk index is calculated by using the principal component analysis and Google Trends. A quantile regression approach is adopted to assess the effect of the political risk index on Bitcoin return and volatility for both periods subject to market conditions.

Findings

Findings reveal that the political risk index tends to increase when moving from the pre-election period to the post-election one. This is mostly attributed to the new challenges faced by the new elected government. During the pre-election period, the quantiles regression shows that the political risk index negatively affects Bitcoin return when the market is bearish, whereas a positive impact on volatility is found in bearish and bullish markets. When the political situation becomes severer during the post-election period, the quantiles plots show that the increase of the political risk index leads to a significant increase of Bitcoin return, whereas Bitcoin volatility remains relatively stable. This means that Bitcoin can be adopted as a hedging tool when the political situation becomes severer.

Originality/value

Comparing to the existed studies in the field, this paper considers Google trends as a main source to assess the daily composite political risk index during the 2016 US presidential election.

Details

Journal of Financial Economic Policy, vol. 13 no. 1
Type: Research Article
ISSN: 1757-6385

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Article
Publication date: 2 June 2021

Hechem Ajmi, Nadia Arfaoui and Karima Saci

This paper aims to investigate the volatility transmission across stocks, gold and crude oil markets before and during the novel coronavirus (COVID-19) crisis.

676

Abstract

Purpose

This paper aims to investigate the volatility transmission across stocks, gold and crude oil markets before and during the novel coronavirus (COVID-19) crisis.

Design/methodology/approach

A multivariate vector autoregression (VAR)-Baba, Engle, Kraft and Kroner generalized autoregressive conditional heteroskedasticity model (BEKK-GARCH) is used to assess volatility transmission across the examined markets. The sample is divided as follows. The first period ranging from 02/01/2019 to 10/03/2020 defines the pre-COVID-19 crisis. The second period is from 11/03/2020 to 05/10/2020, representing the COVID-19 crisis period. Then, a robustness test is used using exponential GARCH models after including an exogenous variable capturing the growth of COVID-19 confirmed death cases worldwide with the aim to test the accuracy of the VAR-BEKK-GARCH estimated results.

Findings

Results indicate that the interconnectedness among the examined market has been intensified during the COVID-19 crisis, proving the lack of hedging opportunities. It is also found that stocks and Gold markets lead the crude oil market especially during the COVID-19 crisis, which explains the freefall of the crude oil price during the health crisis. Similarly, results show that Gold is most likely to act as a diversifier rather than a hedging tool during the current health crisis.

Originality/value

Although the recent studies in the field focused on analyzing the relationships between different markets during the first quarter of 2020, this study considers a larger data set with the aim to assess the volatility transmission across the examined international markets Amid the COVID-19 crisis, while it shows the most significant impact on various financial markets compared to other diseases.

Details

Studies in Economics and Finance, vol. 38 no. 5
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 23 September 2019

Hechem Ajmi, Hassaneddeen Abd Aziz, Salina Kassim and Walid Mansour

The purpose of this paper is to determine the optimal profit-and-loss sharing (PLS)-based contract when market frictions occur.

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Abstract

Purpose

The purpose of this paper is to determine the optimal profit-and-loss sharing (PLS)-based contract when market frictions occur.

Design/methodology/approach

This paper opts for an adverse selection analysis and Monte Carlo simulation to assess the less risky contract for the principal and the agent when musharakah, mudarabah and venture capital financings are used in imperfect markets. Furthermore, this framework enables us to capture the level of market frictions that the principal can bear and the level of audit that he/she may undertake to mitigate bankruptcy.

Findings

The simulation results reveal that Musharakah is the less risky contract for the principal compared to Mudarabah and venture capital when the shock is low and high. Furthermore, our findings indicate that the increase of market frictions engender higher audit cost and profit-sharing ratios. The increase of the safety index in the case of high shock is most likely attributed to the increase of the audit parameter for all contracts to mitigate the selfish behavior of the agent. Accordingly, the principal tends to require a higher profit-sharing ratio to compensate for the severer information asymmetry.

Research limitations/implications

This paper has two main limits. First, the results were not compared to real data because the latter are not available. Second, this paper is a general framework to determine the less risky contract for the principal and does not consider the firm and sectoral characteristics. However, it can be extended in various ways where stress can be put on conflicts of interest between the principal and the agent with the aim to determine the contract that aligns their interests. In addition, the examination of firm dynamics in the case of equity and debt financing can provide further arguments for economic agents regarding the value of the firm, the growth rate and the lifetime of the project when information is asymmetrically distributed.

Practical implications

The findings shed some light on the necessity of the Islamic finance experts to re-think of the promotion of Musharakah because it dominates the two other contracts when market frictions occur.

Social implications

Although Maghrabi and Mirakhor (2015), Alanzi and Lone (2015) and Lone and Ahmad (2017) among others showed that profit and loss sharing can ensure economic growth, findings may motivate economic players to consider Musharakah financing with the aim to reach financial inclusion and social, which is in line with Shari’ah requirements and Islamic values.

Originality/value

Although several papers highlighted the financial contracting theory from Shari’ah perspective, they ignored the financial issues that are associated to adverse selection. This paper provides theoretical evidence regarding the selection of the less risky financing mode in case of equity financing using Monte Carlo simulation.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 12 no. 4
Type: Research Article
ISSN: 1753-8394

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