Islamic banking is a new industry which has attracted the attention of many economists in the world regarding its ability to operate successfully and its instruments for mobilising and allocating monetary resources (Deposits). Usually, in the majority of Islamic countries and in some non-Islamic countries, Islamic banking works as one part of a banking system. There are few countries where the banking system is completely Islamic and the Islamic Republic of Iran is one of them. In a country in which the entire system is Islamic there are more questions about its activities. The most important questions are: how can bank managers ensure the Shariah-compliance of banking system activities and how can they contribute to economic development? These are the two main questions of this research. In order to answer the first question, the Law of Usury-Free Banking in Iran was analysed and it was shown that this law is Shariah-compliant. However, the most important issue is to make sure that all banks in the country work according to the Law of Usury-Free Banking. In order to explore this semi-structured interviews were carried out with twelve interviewees including managers of the Central Bank and commercial banks and researchers. The result of the interviews was the introduction of several instruments used in the banking system of Iran for the supervision of banking activities and to ensure their Shariah-compliance. A new issue in this research is that being Shariah-compliant does not only mean utilising appropriate contracts for each project but also using deposits for the most efficient and profitable projects. This is because banks are the agents of the depositors and therefore they must use their deposits for the best possible projects. The vast majority of interviewees believe that Islamic banking system in Iran works in conformity with the Law of Usury-Free Banking in Iran. Regarding the second main question, this study utilised both quantitative and qualitative methods in order to obtain sufficient data to analyse it. The secondary data was taken from Iran‘s Central Bank Annual Reports, other Iranian banks‘ reports, the Ministry of Industry, the Ministry of Agriculture and the Statistics Centre of Iran. Although the main period of the study was 1989-2006, in order to make a comparative study the periods 1961-1978 and 1979-1988 were considered in some parts of the study. For a more accurate study, not only were the amounts of deposits and financial facilities in the periods before and after the Islamic Revolution compared, but their ratio to liquidity (M2) and GDP were also compared. Our finding was that Islamic banking was relatively more successful than conventional banks operating before the Islamic Revolution in Iran. One important aspect of the contribution of the banking system in Iran to economic development is direct investment. The Islamic banking system in Iran has carried out thousands of huge projects directly most of which cannot be undertaken by private sector including: highways, petrochemical industries, wood and paper industries, industrial farming and animal husbandry, automobile manufacture, the cement industry, railways and so on. In addition, primary data was collected via semi-structured interviews. The majority of interviewees believed that Islamic banking in Iran has had a positive effect on economic development.

This thesis investigates various roles that investor sentiment may play in asset pricing. The empirical analysis consists of three main parts based on the role of investor sentiment in the stock markets. The first part discusses the role of investor sentiment as conditioning information. It aims to examine its ability to explain the dynamic nature of the expected returns for individual stocks and its explanatory power capture the financial market anomalies such as the size, value, liquidity, and effects. The second part focuses on the role of investor sentiment as a risk factor. The purpose is to construct a risk factor on the basis of investor sentiment and test whether this proposed sentiment factor is priced and helps to explain the aforementioned financial market anomalies. The third part explores the role of investor sentiment in different international stock markets. It attempts to assess the extent to which investor sentiment affects the stock market volatility and returns of different regions. The results suggest that investor sentiment exhibits explanatory power for cross section of stock returns in the U.S. market. Acting as conditioning information or a risk factor, investor sentiment can generally capture the size and value effects. Furthermore, it can also capture the momentum effect under certain model specifications. The thesis shows that investors require compensation for bearing noise traders; in other words, investor sentiment is a priced factor. At the market level, the impacts of investor sentiment on stock volatility and returns vary across countries. For some countries investor sentiment affects both volatility and returns while for the others investor sentiment has less influence on stock price behaviour. Overall, the findings of the thesis provide empirical evidence that overlooking the role of investor sentiment in classical finance theory could lead to an imperfect picture of describing the stock price behaviour.

As shelter is one of basic needs for the human beings, the financing for housing need is also an essential need. Since individuals are not in a position to pay for their houses in one go, the availability of mortgage is an imperative in ensuring homeownership. Islamic mortgage as being the housing finance tool of Islamic banking and finance offers a home ownership for those who seek for halal alternative. There are indeed various type of instruments used as an underlying contract for Islamic mortgage, which comprise of debt based financing (murabaha, istisna’, ijarah, bay’bithaman ajil) and equity based financing (musharakah mutanaqisah). As the debt based products of Islamic mortgage are criticised for mimicking the conventional counterparts, the introduction of equity product of home financing based on musharakah mutanaqisah (MM home financing) is deemed to become a better alternative, which capable of fulfilling the true spirit of Shari’ah and overcome the shortcomings of debt based products. As MM based Islamic mortgage has just been in the Malaysian market for seven years, there are many issues surrounding its implementation. This study, therefore, aims to explore and critically analyse the supply and demands side issues related to MM home financing by paying particular attention to challenges and prospects of MM home financing in Malaysia. In particular, this study explores legal and Shari’ah related operational issues associated with the implementation of MM home financing and also examine the prospects of this product through customers’ perceptions and expectations. In achieving the aims, this study employed mixed method whereby the data obtained from the questionnaire survey and interviews. The sample size of the questionnaire survey is 260 respondents who have either Islamic or conventional mortgage and are from Klang Valley area of Malaysia. The interviews were conducted with 19 individuals who are actively involved in the implementation of MM home financing in Malaysia including Islamic bankers, Islamic economists, Shari’ah advisor and regulator. The interview finding revealed that besides several legal issues such as inadequate of legal framework, treatment in the event of default, non-standardised agreement, issue of ownership and Shari’ah issues such as use of purchase undertaking or wa’d, there are number of other issues involved in MM home financing. These include takaful and its maintenance, issue of rental benchmarking. All these together are believed to hinder and ‘pollute’ the MM home financing operation. The study also noted the problems that also arose from the banks and customers itself. The finding of the survey, also, revealed that the customers’ awareness on Islamic mortgage products is still very low, particularly for MM home financing. In addition, take-up reason for Islamic mortgage is mainly due to religious factor and non take-up reason is due to the price. However, it is very interesting to note that the majority of the respondents expected Islamic mortgage to be capable of safeguarding their interest. In other words, majority of the respondents expect Islamic mortgage could realise the inherent advantages associated in it which capable of serving the individual but also social interest. This factor is crucial to the Islamic banks, as this position seems generally agreed and expected by majority of the respondents. Therefore, capable of fulfilling this factor will ensure a promising future for MM home financing as the price for MM home financing is as competitive as the conventional counterparts making Islamic mortgage having extra advantages for the customers to opt for. Based on the findings of the study, several recommendations are also proposed in order to revive the soul and spirit of Shari’ah which ultimately portray the efficiency and effectiveness of Islamic finance particularly in dealing with home financing for the benefit of all the stake holders.

The main object of this study is to explore and examine some of the ways which might enable the banking institutions in underdeveloped countries in general, and in Iraq in particular, to play a more effective part in the promotion of economic development. In the first chapter some important economic and social aspects of Iraq are displayed. In the second chapter some examination of the experiences of the Iraqi monetary authorities is made. The banking institutions in Iraq, i.e., the commercial and specialised banks, together with the central bank are discussed in chapter three. In this chapter, the possible contribution of the commercial banks in the promotion of economic development by providing medium and long-term loans to agriculture and industry is discussed. In addition, the possible ways in which some of the specialised banks might increase and improve their services are presented. In chapter four the device of deficit financing is applied to a model which represents underdeveloped countries in general. Chapter five offers an application of the device of deficit financing as shown in the model, adjusted to suit the circumstances prevailing in Iraq. Chapter six presents a consideration of the balance of advantage and disadvantage which may be thought to apply to the use of the device of deficit financing, especially when it is agreed that one of the possible outcomes is inflation. This is followed by chapter seven where the conclusions and recommendations reached in the light of the study are set out. We then have six appendices, including a statistical one. The main conclusions are: 1. It may be worthwhile for monetary authorities to consider, very carefully, the possibility of using the device of deficit financing, under certain conditions and within specified limits.2. In calculating changes in prices the categories of the Quantity Theory of the Value of Money can be usefully employed, particularly if an attempt is made to introduce dynamic elements into the Fisher framework, as is done in this study.3. It need not be held that moderate inflation must, necessarily, turn into high and hyper-inflation.4. The commercial banks in under developed countries should give favourable consideration to the making of medium and long-term loans to agriculture and industry.5. Under normal conditions, particularly of international trading, Iraq may be thought to be in a more favoured position to adopt the suggestions set out in (1) and (4) above, than most other underdeveloped countries. These are perhaps all the more significant for Iraq in that the natural resource, oil, which provides opportunity, is a diminishing or wasting asset.

This thesis examines the possible implications of international cross-listings for the wealth of shareholders, for stock liquidity and volatility, and for the distribution of trading volumes across both the domestic and foreign stock markets where the shares are traded. For the purpose of clarity, these three issues are analysed in three empirical chapters in the thesis. The first empirical issue examined in this thesis is the effects of international cross-listings on shareholders’ wealth. This is discussed in chapter 2. The chapter compares the gains in shareholders’ wealth that result from cross-listing in the American, British, and European stock exchanges and then evaluates their determinants by applying various theories on the wealth effects of cross-listing. Moreover, it evaluates how the wealth effect of cross-listing has changed over time reflecting the implications of the significant developments in capital markets that have taken place in recent years. In particular, the effects of the introduction of the Euro in Europe and the adoption of the Sarbanes-Oxley Act in the US are analysed. The findings suggest that, on average, cross-listing of stocks enhances shareholders’ wealth but the gains are dependent on the destination market. In addition, the regulatory and economic changes in the listing environment not only alter the wealth effects of cross-listings, but also affect the sources of value creation. Overall, this chapter provides in-depth insights into the motivations for, and the benefits of, cross-listings across different host markets in changing market conditions. The second empirical issue examined is the impact of cross-listing and multimarket trading on stock liquidity and volatility (chapter 3). Cross-listing leads to additional mandatory disclosure in order to comply with the requirements of the host market. Such requirements are expected to reduce information asymmetry among various market participants (corporate managers, stock dealers, and investors). An enhanced information environment, in turn, should increase stock liquidity and reduce stock return volatility. The findings of this study suggest that the stock liquidity and volatility improves after cross-listing on a foreign stock exchange. Moreover, this study distinguishes between cross-listing and cross-trading. The distinction is important because cross-trading, unlike cross-listing, does not require the disclosing of additional information. Although such a distinction means there is a variation in the information environment of cross-listed and cross-traded stocks, the results do not reveal any significant difference in the liquidity and volatility of the stocks that are cross-listed and cross-traded. This evidence suggests that the improvement in the liquidity and volatility of cross-listed/traded stocks comes primarily from the intensified competition among traders rather than from mandatory disclosure requirements. The final empirical issue investigated in this thesis (chapter 4) is the identification of the determinants of the distribution of equity trading volume from both stock exchange and firm specific perspectives. From a stock exchange perspective, exchange level analysis focuses on the stock exchange characteristics that determine the ability of a stock exchange to attract trading of foreign stocks. While from a firm perspective, firm level analysis focuses on firm specific characteristics that affect the distribution of foreign trading. The results show that a stock exchange’s ability to attract trading volumes of foreign equity is positively associated with a stock exchange’s organizational efficiency, market liquidity, and also the quality of investor protection and insider trading regulations. Analysis also reveals the superior ability of American stock exchanges to attract trading of European stocks. Moreover, there is strong evidence suggesting that regulated stock exchanges are more successful in attracting trading of foreign stocks than non-regulated markets, such as OTC and alternative markets and trading platforms. From a firm perspective, the proportion of trading on a foreign exchange is higher for smaller and riskier companies, and for companies that exhibit lower correlation of returns with market index returns in the host market. Also this proportion is higher when foreign trading takes place in the same currency as trading in the firm’s home market and increases with the duration of a listing. Finally, the study provides separate evidence on the expected levels of trading activity on various stock exchanges for a stock with particular characteristics. Overall, the findings of this thesis suggest that international cross-listing is beneficial for both firms and their shareholders but the findings also suggest that there are significant variations in the implications of cross-listings for different firms and from listing in different destination foreign markets. Finally, these implications are not static and respond to changes and reforms in listing and trading conditions.

As the fundamental principles of Islamic finance are socio-economic justice and benevolence (Al-Adle Wal-ihsan), some commentators have raised serious questions about the social benefits that Islamic banks have brought to those on low incomes. This research involves an empirical study looking at the financial exclusion of less affluent UK Muslims before and since Shari’a compliant finance was introduced. The impact of the introduction of Islamic banking in enhancing the financial inclusion level of low income Muslims is assessed. The main findings of the research are that the majority of UK Muslims are financially excluded due to the absence of banking products that would meet their needs and would also comply with Shari’a. The research also found that although UK Muslims have a preference for Shari’a compliant finance, the Shari’a compliant financial products currently on offer did not significantly enhance their financial inclusiveness. According to the research findings, the main reasons for the low take-up of the existing Shari’a compliant financial products relate to the strong skepticism about the authenticity of such products. Similarly, affordability, acceptability and accessibility of these products remained a real cause for concern for most of the less affluent UK Muslims. The research concluded that the providers of Shari’a compliant finance need to redesign their current provision to make it more relevant to the financial services needs of the less affluent UK Muslim communities. The research further suggested that Islamic micro-financing schemes should be set up by mainstream financial institutions to cater for the financial services needs of the less affluent UK Muslims. Strong coordination between governmental institutions tackling financial exclusion, providers of Shari’a compliant financial products and local community developmental organizations was also recommended.

In recent years many stock exchanges have moved away from floor-based to automated-based trading systems. However, the choice between these alternative trading systems is a major concern for stock exchange regulators and designers, and the impact of their merits on market characteristics (e.g. liquidity) is controversial. This thesis is motivated by the desire to shed light on this controversy, and therefore aims to offer a comparative analysis of various aspects of liquidity under floor and automated trading systems. More specifically, within the context of different trading systems (i.e. floor versus electronic), this thesis examines three empirical issues: firstly, the determinants of market-wide liquidity and its time-series behaviour; secondly, whether market-wide and firm-specific liquidity are priced in assets returns; and finally, whether the cross-sectional variations in firm-specific liquidity could be explained by the cross-sectional variations in information asymmetry and divergence of opinion. The findings of this thesis can be summarized as follows. Firstly, market-wide liquidity is significantly influenced by market returns, market volatility, interest rate variables and the announcement of macroeconomic indicators. Market-wide liquidity also shows distinct day-of-the-week regularities and a distinct pattern around holidays. The impact of some factors on market-wide liquidity, and the time-series behaviour of market-wide liquidity on the floor trading system in some markets is higher than that on the electronic trading systems. Secondly, market-wide liquidity has a significant impact on assets returns, and after controlling for its effect, firm-specific liquidity has a significant effect on risk-adjusted returns. The liquidity premium required on market-wide and firm-specific liquidity, for some proxies of liquidity in some markets, is higher on an automated trading system than on a floor trading system. Finally, firm-specific liquidity is negatively related to the level of information asymmetry. However, the evidence for the impact of divergence of opinion on firm-specific liquidity is inconclusive; a higher level of divergence of opinion results in higher liquidity, which supports the optimistic view; and firm-specific liquidity decreases with divergence of opinion, which is consistent with the view that disagreement among investors is a source of risk. Additionally, after automation, the impact of information asymmetry (divergence of opinion) on firm-specific liquidity is greater (lesser) than that before automation. Overall, this thesis demonstrates that the design and the structure of markets is closely linked to the latter’s performance and that the change to automated trading systems has significant implications for liquidity. As such, this study should be a valuable reference point for stock exchanges that have introduced automation, or are considering doing so.

Islamic banking deposits are fundamentally structured in a different way than the conventional banking deposits. Each type of Islamic banking deposits, such as savings, demand, and timed deposits, is devised using the approved Shari’ah contracts such as qard, wadiah, murabahah, and mudarabah. These contracts are opposed to the conventional concepts, as they are based on the concept of a ‘lender-borrower’ relationship. In addition, the Shari’ah-approved contracts are unique as they feature a different nature of risk and return. This is especially the case for mudarabah contracts (henceforth referred to as profit-sharing contracts). The uniqueness of profit-sharing contracts in deposit products has been given due recognition in theory and also in practice, as most of the Islamic banks in Malaysia offered this product. In addition, the unique features and characteristics of profit-sharing based deposit accounts are also highlighted in the prudential standards issued by prominent regulatory bodies such as AAOIFI and IFSB which, have been adopted by the Bank Negara Malaysia (Central Bank of Malaysia). Nevertheless, it is argued by many Islamic banks practitioners, especially in Malaysia, that the concept of profit-sharing in deposits products is not practical in reality, because the depositors do not behave according to, nor accept the principles that have been laid down in the Shari’ah. Thus it is argued that both the depositors and the Islamic bankers have treated the product similar to any other conventional banking deposits products. The main aim of this study, hence, is to explore and examine the level of awareness, knowledge, perceptions, and attitude of the Islamic banking depositors in Malaysia towards characteristics of profit-sharing deposits accounts in accordance with the fundamental Shari’ah principles but also the regulations prevailing. In addition, this research also attempts to explore the significant determinant factors that encourage the depositors to engage with Islamic banking deposits accounts in general and profit-sharing deposits accounts in particular. In fulfilling the aim of the study, primary data collection research was adopted through a survey questionnaire technique. The questionnaires were distributed to eight Islamic banks representing various types of Islamic banks in Kuala Lumpur and Selangor. The questionnaire asked various pertinent questions, which intended to elicit the depositors’ opinions, perceptions, and attitudes towards the unique characteristics of profit-sharing contract as specified in Shari’ah muamalah principles. The characteristics among others are: (i) concept of uncertain deposits returns; (ii) concept of non-guarantee for the deposits; (iii) concept of profit equalization reserve. A total 649 of the returned questionnaires were complete and fit for analysis purpose. The data were analysed using various statistical analysis techniques ranging from simple frequency distribution analysis to the more advanced analyses such as non-parametric statistical analysis, factor analysis, and logistic regression. In general, the results of the study show that the level of awareness of the need to have Islamic banking deposits accounts because of religious reasons is considered as high among the Malaysian depositors. Nevertheless, the results also indicate that a high level of awareness is not being translated into a high level of understanding concerning the objectives of the products which are structured in accordance to the Shari’ah-compliant contracts. This can be seen in the major findings of this study: the characteristics of profit-sharing contracts, which arguably are the most desirable Shari’ah-compliant contracts, are not acceptable to the depositors. This indirectly implies that they are still strongly influenced by the nature of conventional banking products. In addition, the logistics regression results further proved that related factors (‘financial services’ and ‘income’) emerged as the main determinants in creating demand for profit-sharing deposits accounts. The results of the research should draw the attention of the Islamic bankers and also the regulators to finding ways for improving the level of understanding among the depositors. However, the critical successful factor in educating the depositors is highly dependent on the level of knowledge exhibited by the Islamic bankers themselves, which can be a real concern as highlighted by the findings of this study.

The purpose of this research is to define the payout policy of Islamic banks in the GCC and to identify the factors that influence payout distributions. For this purpose, a two stage research strategy was employed. In the first stage, investors’ and managers’ surveys were conducted to measure the perceptions towards payout policies. In the second stage, the survey results are utilized to formulate and test a payout model by multivariate regression analysis. In the investors’ survey, an electronic questionnaire was posted on internet investment forums in the GCC and sent via email to investors. 287 useable responses were collected. The data was analyzed and the results show that investors prefer to receive dividends due to transaction and agency costs, which supports the dividend relevance hypothesis. The findings suggest that the agency cost is explained by the uncertainty resolution, window dressing and free cash flow hypothesis. Investors were found to assess the payouts, which comprises of dividends and profit distributions for profit and loss saving and investment accounts (PSIA), by comparing it to market and historical rates. Investors were found to diversify their investments based on risk and return. If the characteristics of an asset (e.g. dividend policy) are changed, investors would switch to other assets that meet their investment objectives. In terms of stock repurchases, investors perceive it as a signal that the stock price is undervalued. On the other hand, stock dividends were interpreted by investors as a stock split or capital increase. As for Islamic banking, customers reported that the primary motivation to deal with these banks is the religious obligation. In the managers’ survey, semi-structured interviews were conducted with 10 managers to understand the payout process and the factors that influence distributions. The results show that PSIA distributions are mainly driven by competitors’ payouts, historical distributions, and signalling. As for dividends, managers reported that the payout decision is relevant to the firm’s value. Dividends were believed to comply with the increasing stream hypothesis and the Lintner model. Managers believe that stability of the payout policy is perceived by investors as a positive signal of the bank’s strength. They also believe in the maturity and growth effects arguing that new banks have relatively higher capital expenditures which flatten out over time. Consequently, mature banks tend to have higher and more stable dividend distributions. Finally, managers reported that banks’ liquidity and financial ability has a positive relationship with dividend distributions. Based on the feedback of stage one, a payout model that comprises of PSIA and dividend models was formulated and tested by employing multivariate regression analysis. The study uses the financial data of 13 Islamic banks in the GCC between 1993 and 2008. The results show that PSIA is influenced by competitors’ distribution and historical distribution rates. On the other hand, the results of the dividend model show that dividends are influenced by profitability, historical dividends and the level of maturity. The results of the PSIA model support the competitive payout hypothesis, increasing stream hypothesis, the Lintner model and information signaling hypothesis. The results of the dividend model support the increasing stream hypothesis, the Lintner model, information signaling hypothesis, and the growth and maturity effects. The findings for the competitive payout hypothesis reported by investors, managers, and the PSIA model support the existence of displaced commercial risk, which calls for additional research in this area by the banks and regulators to control it by focusing on research for cooperative insurance schemes, prudent reserve practices, and liquidity management.

Managed funds have become a popular investment tool and possess a lot of advantages. However, in spite of their popularity, most past research findings on the evaluation of performance have suggested that managed funds were unable to do significantly better than a large unmanaged portfolio. The aim of this thesis is to evaluate empirically the performance of managed funds. The funds chosen are; UK equity, ethical unit trusts and US-based Dow Jones Islamic index -an index of Islamic ethical funds portfolio. We examine the performance of UK equity unit trusts which invest in UK equities, using monthly samples over the 1986 to 2001 time period. The study compares the return of these unit trusts with a three-factor model which takes into account their exposure to market, value and size risk. After controlling the risk factors, it is found that manager’s under-perfom the market. Contrary to the notion that small company shares offer abundant "beat the market" opportunities, we find that small company trusts are the worst performers. The performance persistence of unit trusts is also examined and it is found that good performance does not persist. There are investors who out of their concern regarding adverse changes in our environment, concerns for justice, and because of their opposition to the arms race, decline to purchase the securities of such enterprises that engage in what are termed unethical or socially irresponsible activities. Such activities usually include, but are not necessarily limited to, the production of armaments, alcohol and tobacco; engaging in activities that degrade the environment; and engaging in activities that treat people unfairly. Declining to invest in the securities of enterprises that engage in unethical practices is not only a form of social protest, but can also have the effect of diminishing the demand for a company's securities. A diminishment of demand may then have an adverse financial impact on a company. This may prove to be a crucial factor in influencing companies to change and become more socially responsible. The question therefore arises: has the investment performance o f ethical investors suffered in comparison to those who are not so responsible? To answer the above, a study has been done which encompasses 35 U K ethical unit trusts which cover the period of seven years tough 1996. The study presents a comprehensive evaluation o f managed funds performance by employing various single to multifactor benchmark models.The added value of introducing extra variables such as size, book to market, momentum and a bond index is explored by evaluating the performance using conditional information and comparing the investment performance of U K ethical unit trusts with unit trusts which are not ethical. After controlling for style tilts and allowing for time variation in betas and expected return, the results show that there is no significant difference in performance between U K ethical unit trust and their conventional peers. Within an unconditional setting SMB, HML and momentum factors are best able to explain ethical unit trust returns. Therefore, unconditional models perform much better than their conditional peers. Islamic ethical investors apply both Islamic ethical and financial criteria when evaluating investments in order to ensure that the securities selected are consistent with their value system and beliefs. Using monthly returns for the period starting from January 1996 to December 2003， the study is conducted to see the potential impact that Islamic ethical restrictions may have on investment performance by comparing the performance characteristics o f a diversified portfolio of Islamic screened stocks (Dow Jones Islamic index) w i t h conventional benchmark portfolio ( Dow Jones Index- Americas). Contrary to expectations, our findings indicate that application of Islamic ethical screens do not necessarily have an adverse impact on investment performance. Results actually show that expected returns of Islamic screened portfolios are higher than the expected returns o f conventional portfolios.