Gharar and mispricing of equity warrants, Malaysian evidence

In Islamic finance, the use of derivatives seems to be in dispute among the scholars despites its prominent emergence in the market. Majority of scholars object the use of derivatives on the basis that it contains the element of gharar. The Jeddah Fiqh of Academy rules that options are objectionable...

Full description

Bibliographic Details
Main Author:	Haron, Razali
Format:	Conference or Workshop Item
Language:	English English
Published:	2014
Subjects:	HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/37242/ http://irep.iium.edu.my/37242/1/Paper_ID_182_Razali_Haron_IREP.pdf http://irep.iium.edu.my/37242/2/IBF_2014_Conference_Programme.pdf

id	iium-37242
recordtype	eprints
spelling	iium-372422018-06-19T06:52:39Z http://irep.iium.edu.my/37242/ Gharar and mispricing of equity warrants, Malaysian evidence Haron, Razali HG4001 Financial management. Business finance. Corporation finance. In Islamic finance, the use of derivatives seems to be in dispute among the scholars despites its prominent emergence in the market. Majority of scholars object the use of derivatives on the basis that it contains the element of gharar. The Jeddah Fiqh of Academy rules that options are objectionable for they could not infer options in the world today with any of the Shariah nominated options contracts. Nevertheless, some scholars argue the validity of this instrument based on the concept of khiyar-al-shart and drew parallel with the concept of bai-al urbun. This study investigates warrants pricing of 73 Malaysian warrants traded within the six year period by employing the BSOPM. There seems to be deviations of pricing where 96% (70 out of 73) of the warrants traded are mispriced in reference with their theoretical values. This mispricing of warrants indicated inefficiency in the Malaysian warrants market. Therefore, based on the argument above and the extent of mispricing revealed in the analysis, this study found the element of gharar in warrants contract when viewed from the pricing inefficiency in the market. Mispricing of warrants in Malaysian market indicates speculative activities and speculation is not allowed in Islam. Speculation may contain gharar (uncertainty) and maysir (gambling) which are all prohibited in Islam. Islam forbids these because they may result in wealth accumulation at the expense of other parties. This activity violates the concept of adl (justice), does not serve the concept of maslahah (public interest) and does not follow the maqasid al Shariah. 2014-06-23 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/37242/1/Paper_ID_182_Razali_Haron_IREP.pdf application/pdf en http://irep.iium.edu.my/37242/2/IBF_2014_Conference_Programme.pdf Haron, Razali (2014) Gharar and mispricing of equity warrants, Malaysian evidence. In: Islamic Banking & Finance 2014 Conference, 23-24 June 2014, Lancaster, UK.
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HG4001 Financial management. Business finance. Corporation finance. Haron, Razali Gharar and mispricing of equity warrants, Malaysian evidence
description	In Islamic finance, the use of derivatives seems to be in dispute among the scholars despites its prominent emergence in the market. Majority of scholars object the use of derivatives on the basis that it contains the element of gharar. The Jeddah Fiqh of Academy rules that options are objectionable for they could not infer options in the world today with any of the Shariah nominated options contracts. Nevertheless, some scholars argue the validity of this instrument based on the concept of khiyar-al-shart and drew parallel with the concept of bai-al urbun. This study investigates warrants pricing of 73 Malaysian warrants traded within the six year period by employing the BSOPM. There seems to be deviations of pricing where 96% (70 out of 73) of the warrants traded are mispriced in reference with their theoretical values. This mispricing of warrants indicated inefficiency in the Malaysian warrants market. Therefore, based on the argument above and the extent of mispricing revealed in the analysis, this study found the element of gharar in warrants contract when viewed from the pricing inefficiency in the market. Mispricing of warrants in Malaysian market indicates speculative activities and speculation is not allowed in Islam. Speculation may contain gharar (uncertainty) and maysir (gambling) which are all prohibited in Islam. Islam forbids these because they may result in wealth accumulation at the expense of other parties. This activity violates the concept of adl (justice), does not serve the concept of maslahah (public interest) and does not follow the maqasid al Shariah.
format	Conference or Workshop Item
author	Haron, Razali
author_facet	Haron, Razali
author_sort	Haron, Razali
title	Gharar and mispricing of equity warrants, Malaysian evidence
title_short	Gharar and mispricing of equity warrants, Malaysian evidence
title_full	Gharar and mispricing of equity warrants, Malaysian evidence
title_fullStr	Gharar and mispricing of equity warrants, Malaysian evidence
title_full_unstemmed	Gharar and mispricing of equity warrants, Malaysian evidence
title_sort	gharar and mispricing of equity warrants, malaysian evidence
publishDate	2014
url	http://irep.iium.edu.my/37242/ http://irep.iium.edu.my/37242/1/Paper_ID_182_Razali_Haron_IREP.pdf http://irep.iium.edu.my/37242/2/IBF_2014_Conference_Programme.pdf
first_indexed	2023-09-18T20:53:25Z
last_indexed	2023-09-18T20:53:25Z
_version_	1777410145826897920

Gharar and mispricing of equity warrants, Malaysian evidence

Similar Items