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Über dieses Buch

This book explores the volatility, efficiency and integration of stock markets in Islamic countries. It presents recent trends, growth and performance, before moving on to explore how patterns change during different business cycles for short-term and long-term investors, and ranks the efficiency of the various markets. It addresses how the level of market integration has been affected during different economic periods, and concludes by summarising the performance of the stock markets, suggesting potential future directions for these markets.



1. Introduction

Economists have long being interested in researching the role of financial development in the economic growth of countries. Many believe the stock market to be a barometer for economic performance, as it allocates the capital needed for consistent growth of the economy. Following the recent global crisis, attention on emerging and developing markets have increased tremendously, questioning whether these countries’ market are apt in withstanding influxes of capital without crashing. The Organization of Islamic Cooperation (OIC), despite its global presence and potential, has often been criticized about its stock markets, which are marred by underdevelopment and illiquidity. This forms the main crux of this book and is explored in detail in this chapter.

Shaista Arshad

2. Background on Business Cycles

The chapter provides some background on business cycles. When discussing business cycles, it becomes necessary to define clearly recessions and expansions. The National Bureau of Economic Research (NBER) defines recession as a period between a peak and a trough, and expansion as a period between trough and a peak. Furthermore, the different types of cycles and theories associated with business cycles are discussed. A key theory that is relevant in this book is the Real Business Cycle (RBC) theory. According to the theory, changes in technology in the business sector cause the booms and bust of a business cycle.

Shaista Arshad

3. Overview of the Organization of Islamic Cooperation

The chapter provides a detailed description of the Organization of Islamic Cooperation (OIC) and its stock markets. As the second largest regional bloc, the OIC is home to several rapidly emerging markets and natural resources-rich countries. Despite this, out of the 57 member countries, only 33 have an active stock exchange. In these, there are significantly lower domestic companies listed as compared to other developing and emerging markets. Less liquid markets bring about an increased volatility, and an increased volatility is reflective of both shallowness and a lack of integration with global markets, indicating the main problem with OIC stock markets.

Shaista Arshad

4. Vetting the Volatility

The Organization of Islamic Cooperation (OIC) comprises several rapidly growing industries attracting large sums of foreign direct investments. The emerging nature of the markets and the rapid influx of investments bring about the question of how the stock markets in OIC member countries react to variations in the economy. The objective of this chapter is to understand the relationship between business cycles and stock market volatility within the OIC member countries for short-term traders and long-term investors. The results showed that most of the OIC countries, being oil rich and dependent, saw its business cycle and stock markets fluctuating owing to drops and increases in world oil prices. All the countries in the sample were affected by the global crisis.

Shaista Arshad

5. Examining the Efficiency

As the primary role of the capital market is to allocate the economy’s resources, the fundamental need for an efficient market arises from the importance of efficient resource allocations, which in turn will help the economy. In light of the efficient market hypothesis (EMH), several studies have been undertaken over the past two decade, but very few have been on the Organization of Islamic Cooperation (OIC). This chapter focuses on analysing the weak-form efficiency of OIC member stock markets to determine their efficiency rankings during different business cycles. The results are indicative of improving efficiency over the past decade.

Shaista Arshad

6. Investigating the Integration

Analysing the market integration is an important part of understanding the economic nature of a stock market as it tells us its relationship with world markets and its effect based on movements in other markets. Organization of Islamic Cooperation (OIC) member countries, with higher volatility and greater market instability, are of particular interest in understanding how their markets would react to global or regional news. This chapter will analyse comparatively with developed markets the market integration of OIC member countries with the world average as well look into its regional integration.

Shaista Arshad

7. Conclusion

In an endeavour to have an enriched understanding of the stock markets of Organization of Islamic Cooperation (OIC) countries, this book looks into the relationship between stock markets and business cycles of OIC member countries across three platforms, namely, volatility, efficiency and integration. The results show us that in all three measures, the stock markets are improving over the years. However, there is room for improvement. OIC member countries can benefit from more liberalized and cleaner markets, improved regulations and increased intra-regional trade.

Shaista Arshad


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