Market Reaction of Stocks Included-In And Removed-From Shariah Index: The Case of Kuala Lumpur Shariah Index

Aulia Fuad Rahman

Abstract


Since Bursa Malaysia launched Kuala Lumpur Shariah Index (KLSI) in April 1999, more than 70% of firms listed in Bursa Malaysia also listed in KLSI. As many companies listed in KLSI do not owned by Muslim, the phenomenon generates question on whether companies will get the ad-vantages from being listed in KLSI. This study is aimed at providing empirical evidence on whether the announcement of stocks included-in and removed-from KLSI has the information content and thus will be reacted by market as reflected in average abnormal return (AAR). Furthermore, this study will get into insight on whether market behaves differently to stocks included-in and removed-from KLSI. Using data from KLSI from 1999 through 2005, the results show that, on announcement day, AAR is found statistically positive and significant different from zero (AAR = 0.288%; t-statistic = 1.926) for stocks included-in, while statistically negative and significant different from zero (AAR = 0.660%; t = -2.857) for stocks removed-from KLSI. This implies that investors posi-tively (negatively) react to the stocks included-in (removed-from) KLSI as these firms are perceived as Shariah compliance (non-Shariah compliance) judge by Shariah Advisory Council (SAC). This study also show that CAR for stocks included-in is higher than stocks removed-from KLSI on days before and after announcement date.

References


Collins M.C., J.W. Wansley and B. Robinson. 1995. “Price and Volume Effects Associated with the Creation of S&P’s MidCap Index”. Journal of Financial Research 18: 329-350.

Goetzmann W.N. and M. Garry. 1986. “Does Listing from the S&P 500 Affect Stock Price?” Financial Analysts Journal, March-April: 64-69.

Harris L. and E. Gurel. 1986. “Price and Vol-ume Effects Associated with the Changes in the S&P 500 List: New Evidence for the Existence of Price Pressure”. Journal of Finance, 41 September: 815-829.

Jain, P.C. 1987. The Effect on Stock Price of Inclusion in or Exclusion from the S&P 500. Financial Analysts Jour-nal. January-February: 58-65.

Lian, K.K., Chen, W.Y., Fah, T.L. 2005. Stock Price Effect of Inclusion in and Ex-clusion from the Kuala Lumpur Stock Exchange Composite Index. Prosiding. The Malaysian Finance Association 7th Annual Conference. UiTM Terengganu. Malaysia.

Lynch A.W. and R.R. Mendelhall. 1997. “New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index”. Journal of Busi-ness, 70(3): 351-383.

Shleifer A..1986. “Do Demand Curves for Stocks Slope Down?”. Journal of Finance, 44 July: 579-590.

Sui, L. 2003. The Addition and Deletion Effects of the Standard & Poor’s 500 Index and Its Dynamic Evolvement from 1990 to 2002: Demand Curves, Market Efficiency, Information, Volume and Return. Working Paper. Graduate Center, City University of New York.




DOI: http://dx.doi.org/10.20961/jab.v6i2.41

Jurnal Akuntansi dan Bisnis (JAB)
ISSN 1412-0852 (print), 2580-5444 (online)
Published by Accounting Study Program, Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia


Creative Commons License
JAB on http://jab.fe.uns.ac.id/index.php/jab is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

Visitor Statistic