Bank-specific factors, market conditions and the riskiness of Islamic and conventional banks: evidence from recent quantile approaches
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 20 October 2023
Issue publication date: 16 January 2024
Abstract
Purpose
The purpose of this paper is to investigate how bank-specific factors affect the riskiness of conventional and Islamic banks in response to shocks in major financial indices as market conditions change.
Design/methodology/approach
The authors use a multivariate quantile model using daily equity returns data to analyze financial risk spillovers in the values at risk that may occur between major financial indices and the equity prices of conventional and Islamic banks worldwide. Then, using both quantile and quantile-on-quantile models, the authors examine the effects of bank-specific variables such as leverage ratio, bank size, return on equity and capital adequacy ratio on the initial impact of shocks in major global financial indices on bank equity price returns at different quantiles of shocks and bank-specific variables.
Findings
The findings reveal that major financial indices can predict bank stock returns. Moreover, the authors find that the effect of bank-specific factors on the riskiness of banks is heterogeneous in that it depends on the bank type (Islamic vs conventional), the level of banking variable (high vs low) and, more importantly, market conditions.
Originality/value
To the best of the authors’ knowledge, this is the first study that compares the dual banking system with stock market performance while considering bank-specific variables as market conditions change. The results of this study reveal that the effect of bank-specific variables on bank performance varies according to different quantiles of shocks and bank-specific variables. Islamic banks may echo or differ from conventional banks depending on the specific factor under investigation.
Keywords
Acknowledgements
The authors thank two anonymous referees and the editor, Dr M. Kabir Hassan, for valuable comments and suggestions.
Citation
Aydemir, R., Atan, H.Z. and Guloglu, B. (2024), "Bank-specific factors, market conditions and the riskiness of Islamic and conventional banks: evidence from recent quantile approaches", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 17 No. 1, pp. 16-44. https://doi.org/10.1108/IMEFM-11-2022-0435
Publisher
:Emerald Publishing Limited
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