Performance of Market Discipline on the Islamic Financial Instrument: Evidence from Indonesian Islamic Gold Investment Scandal

14 Pages Posted: 9 Jun 2015

See all articles by Erie Febrian

Erie Febrian

University of Padjadjaran

Aldrin Herwany

Perbanas Institute; Perbanas Institute

Dian Masyita Telaga

Padjadjaran University - Faculty of Economics and Business

Wardhana Wardhana

Padjadjaran University - Faculty of Economics and Business

Date Written: June 9, 2014

Abstract

Market discipline has been well recognized as effective means for preventing excessive business risk taking. Nevertheless, as the nature of investment in Islamic Finance may not meet the required characteristics, the ability of market discipline to work in its particular instrument market still needs to be proven. This study employed mixed method to answer the research questions. The quantitative analysis was carried out using event study approach, while in qualitative research we gathered qualitative information using questionnaire and Focus Group Discussion (FGD), as well as interviews.

This study utilized data of daily prices of some financial instruments traded in Indonesia, including conventional stocks, syariah-compliant stocks, bond, sukuk, conventional mutual fund, syariah-compliant mutual fund, IHSG, and Jakarta Islamic Index (JII). We employed 7-day, 30-day, 60-day, and 90-day windows around the date of the Islamic gold investment Scandal revelation in 2013, in both conventional and Islamic Finance markets. The qualitative study involved individual respondents, people in the relevant supervisory agencies, academicians, and professionals working in financial institutions. We find that market discipline works well only in Sukuk market and only in shorter period. We also find that negative market actions in both capital market segments may obscure the existence of market discipline. The qualitative study results show that insufficient capability of investors for assessing the investment credibility explains the empirical findings.

Keywords: Market Discipline, Islamic Finance

Suggested Citation

Febrian, Erie and Herwany, Aldrin and Telaga, Dian Masyita and Wardhana, Wardhana, Performance of Market Discipline on the Islamic Financial Instrument: Evidence from Indonesian Islamic Gold Investment Scandal (June 9, 2014). Available at SSRN: https://ssrn.com/abstract=2615532 or http://dx.doi.org/10.2139/ssrn.2615532

Erie Febrian

University of Padjadjaran ( email )

Jl. Dipatiukur 35
Bandung, West Java 40132
Indonesia

Aldrin Herwany (Contact Author)

Perbanas Institute ( email )

Jalan Perbanas, Karet Kuningan, Setiabudi
Jakarta, Jakarta 12940
Indonesia

Perbanas Institute ( email )

Jakarta, DKI Jakarta
Indonesia

Dian Masyita Telaga

Padjadjaran University - Faculty of Economics and Business ( email )

Jalan Dipati Ukur No. 46 Bandung
Jalan Dipati Ukur No. 35 Bandung
Bandung, West Java 40132
Indonesia

Wardhana Wardhana

Padjadjaran University - Faculty of Economics and Business ( email )

Jalan Dipati Ukur No. 46 Bandung
Jalan Dipati Ukur No. 35 Bandung
Bandung, West Java 40132
Indonesia

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