A research paper submitted in fulfilment of the requirement for the Master of Science (Islamic Banking and Finance)

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DOES ISLAMIC INVESTMENT HELP THE CHINESE INVESTORS? EVIDENCE FROM CHINA BASED ON

MGARCH-DCC APPROACH

BY

MA MUXING

A research paper submitted in fulfilment of the requirement for the Master of Science (Islamic Banking and Finance)

IIUM Institute of Islamic Banking and Finance International Islamic University Malaysia

JANUARY 2018

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ABSTRACT

This study investigates the extent to which Chinese equity investors can benefit from diversifying their portfolio into Shariah-compliant (Islamic) indices in China. It examines three Chinese Islamic stock indices and ten sectorial indices as a sample. The multivariate GARCH- dynamic conditional correlation is deployed to estimate the time-varying linkages of returns of the selected indices, covering approximately eight years daily data starting from 28 August 2009 to 29 September 2017. The results indicate that Chinese conventional equity investors would benefit from Islamic stock indices, especially when they include DJ Islamic Greater China in their portfolio. Conventional investors who invest predominantly in the conventional sectors of health care, consumer staples and information technology are set to benefit most from diversifying their portfolios in Islamic stock indices because of the weak correlations of returns. Generally, this research’s empirical findings provide useful insights for Chinese policymakers into formulating new economic stabilization policies to further promote the development of Shariah-compliant capital market in China, and then promote the development of Chinese economy.

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ﺚﺤﺒﻟا ﺔﺻﻼﺧ

ABSTRACT IN ARABIC

ﺑﺎ ﻢﻬﺳﻷا قﻮﺳ ﰲ ﻦﻳﺮﻤﺜﺘﺴﳌا ةدﺎﻔﺘﺳا ﺔﻴﻧﺎﻜﻣا ىﺪﻣ ﺔﺳارد ﱃا ﺚﺤﺒﻟا فﺪﻬﻳ ﻷا ﰲ ﻢﺗﻬارﺎﻤﺜﺘﺳا ﻊﻳﻮﻨﺗ ﻦﻣ ﲔﺼﻟ

ﻮﺘﳌا ﻢﻬﺳ ﻊﻣ ﺔﻘﻓا

قﻮﺴﻟا) ﺔﻴﻣﻼﺳﻹا ﺔﻌﻳﺮﺸﻟا :ﻦﻣ ﻞﻛ ﺬﺨﺘﻳ ﺚﺤﺒﻟا اﺬﻫ ،ﺪﻳﺪﺤﺘﻟا ﻪﺟو ﻰﻠﻋ .(ﺔﻴﻣﻼﺳﻹا

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ﲔﺼﻟا ﰲ ﺔﻴﻣﻼﺳﻹا ﻢﻬﺳﻸﻟ تاﺮﺷﺆﻣ

و

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ﺔﺳارﺪﻟا مﺪﺨﺘﺴﺗ .ﺔﺳارﺪﻠﻟ تﺎﻨﻴﻌﻛ يﺎﻬﻐﻨﺷ ﺔﺻرﻮﺑ عﺎﻄﻗ ﻦﻣ تاﺮﺷﺆﻣ ﳕ

ﻻاو تاﲑﻐﺘﳌا دﺪﻌﺘﻣ ﺶﺗرﺎﻏ ﻲﺟذﻮ طوﺮﺸﳌا طﺎﺒﺗر

ﺷﺆﳌا ﺪﺋاﻮﻌﻟ ﺖﻗﻮﻟا روﺮﲟ ةﲑﻐﺘﳌا ﻂﺑاوﺮﻟا ﺮﻳﺪﻘﺘﻟ ﻲﻜﻴﻣﺎﻨﻳﺪﻟا ﺎﺒﻳﺮﻘﺗ ﻲﻄﻐﺗ ﱵﻟا و ،ةرﺎﺘﺨﳌا تاﺮ

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ءاﺪﺘﺑا ﺔﻴﻣﻮﻴﻟا ت�ﺎﻴﺒﻟا ﻦﻣ تاﻮﻨﺳ

ﻦﻣ

28

ﺲﻄﺴﻏأ / بآ

2009

ﱃإ

29

ﱪﻤﺘﺒﺳ / لﻮﻠﻳأ

2017

ﻢﻬﺳﻷا ﰲ ﻦﻳﺮﻤﺜﺘﺴﳌا نﺎﻜﻣﺑﺈ ﻪﻧأ ﱃإ ﺞﺋﺎﺘﻨﻟا ﲑﺸﺗ ،ﻚﻟﺬﻟ ﺎﻌﺒﺗو .

ﻣ اذإ ﺮﺜﻛأ اوﺪﻴﻔﺘﺴﻳ نأ ﻢﻬﻨﻜﳝو ،ﺔﻴﻣﻼﺳﻹا قﻮﺴﻟا ﻦﻣ ةدﺎﻔﺘﺳﻻا ﲔﺼﻟﺑﺎ ﺔﻳﺪﻴﻠﻘﺘﻟا ﺳﻹا قﻮﺴﻠﻟ ﺰﻧﻮﺟواد ﺮﺷﺆﻣ اﻮﻠﻤﻌﺘﺳا ﺎ

ﻴﻣﻼ ﺔ

ﳏ ﰲ ىﱪﻜﻟا ﲔﺼﻟﺑﺎ ﻢﺗﻬﺎﻈﻔ

ﻻا ﻲﺴﻴﺋر ﻞﻜﺸﺑ نوﺮﻤﺜﺘﺴﻳ ﻦﻳﺬﻟا ﲔﻳﺪﻴﻠﻘﺘﻟا ﻦﻳﺮﻤﺜﺘﺴﳌا نﺎﻜﻣﺑﺈ ﻪﻧأ ﱃإ ﺞﺋﺎﺘﻨﻟا ﲑﺸﺗ ،ﻚﻟﺬﻛ .ﺔﻳرﺎﻤﺜﺘﺳ

ﺔﻴﺤﺼﻟا ﺔﻳﺎﻋﺮﻟا ﻞﺜﻣ ﺔﻳﺪﻴﻠﻘﺘﻟا تﺎﻋﺎﻄﻘﻟا ﰲ نأ ﺔﻴﺳﺎﺳﻷا ﺔﻴﻛﻼﻬﺘﺳﻻا داﻮﳌاو

ﺎﻗ اذإ ﺮﺜﻛأ اوﺪﻴﻔﺘﺴﻳ ﳏ ﻊﻳﻮﻨﺘﺑ اﻮﻣ

ﻢﺗﻬﺎﻈﻔ ﻻا ﺔﻳرﺎﻤﺜﺘﺳ

ﺔﻴﻣﻼﺳﻹا قاﻮﺳﻷا ﰲ .

،مﻮﻤﻌﻟا ﻰﻠﻋ ﻦﻣ

ﺮﻓﻮﺗ ﺚﺤﺒﻟا اﺬﻫ ﺞﺋﺎﺘﻧ آ

ﺔﻣﻮﻜﳊا ﰲ تاراﺮﻘﻟا ﻲﻌﻧﺎﺼﻟ ةﺪﻳﺪﺟ قﺎﻓ ﻞﺟا ﻦﻣ ﺔﻴﻨﻴﺼﻟا

ﺿو ﻊ

ﻻا ﺰﻳﺰﻌﺘﺑ ﺔﻠﻴﻔﻛ ﻂﻄﺧو تﺎﺳﺎﻴﺳ ﻼﺳﻹا ﺔﻌﻳﺮﺸﻟا ﻊﻣ ﺔﻘﻓاﻮﺘﳌا تارﺎﻤﺜﺘﺳ

د�ز ﰲ ﺎﻫروﺪﺑ ﻢﻫﺎﺴﺗ ﱵﻟا و ﺔﻴﻣ ة

ﻻا ﻮﳕ لﺪﻌﻣ دﺎﺼﺘﻗ

ﲏﻴﺼﻟا .

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APPROVAL PAGE

I certify that I have supervised and read this study and that in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a research paper for the degree of Master of Science (Islamic Banking and Finance).

………..

Buerhan Saiti Supervisor

This research paper was submitted to the IIUM Institute of Islamic Banking and Finance and is accepted as a fulfilment of the requirement for the degree of Master of Science (Islamic Banking and Finance).

………..

Syed Musa Alhabshi

Dean, IIUM Institute of Islamic Banking and Finance

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DECLARATION

I hereby declare that this research paper is the result of my own investigation, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Ma Muxing

Signature……….……. Date …...

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COPYRIGHT PAGE

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE IMPACT OF MOBILE INTERFACE DESIGN ON INFORMATION QUALITY OF M-GOVERNMENT SITES

I declare that the copyright holders of this research paper are jointly owned by the student and IIUM.

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Ma Muxing

……..……….. ………..

Signature Date

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ACKNOWLEDGEMENTS

Assalamualaikum warahmatullahi wabarakatuh,

My ultimate praises to the Almighty Allah s.w.t, the most Gracious and the most Merciful, Lord of the universe, and peace and blessings be upon Prophet Muhammad p.b.u.h. for granting me strength and assistance in completing my research project.

First and foremost, I would like to express my deepest appreciation to my supervisor, Associate Professor Dr. Buerhan Saiti for his never ending support, guidance, cooperation and patience in guiding me to complete my research dissertation. I am indebted to him for entrusting me to work under his research grant, funded by the International Islamic University Malaysia (IIUM).

Secondly, my special thanks to all lecturers at the IIUM Institute of Islamic Banking and Finance (IIiBF) for sharing valuable knowledge and skills throughout my study period at IIiBF. May Allah rewards them with goodness in the world and hereafter.

Above all, I would like to express my gratitude to my parents, Mr. Ma Jiachun and Mrs.

Ma Yanhong, who grant me with such great inspiration and motivation.

Finally, my sincere gratitude to all who helped me directly or indirectly in the completion of my research dissertation. This research paper would not have been possible without their kind help.

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LIST OF TABLES

Table No. Page No.

5.1 Descriptive Statistics of selected Indices 41 5.2 ML Estimates of the Gaussian DCC and t-DCC Model on the

Returns of the MSCI, DJ and FTSE China’s Islamic Indices and SSE Sector Indices

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5.3 Table 5.3 Ranks of the Unconditional Volatilities of returns in both Islamic Indices and Conventional SSE Sectorial Indices

44 5.4 Ranks of the Unconditional Correlations between the DJ Islamic

Greater China Index Returns and the SSE Sector Indices Returns

47 5.5 Ranks of the Unconditional Correlations between the FTSE Shariah

China Index Returns and the SSE Sector Indices Returns

48 5.6 Ranks of the Unconditional Correlations between the MSCI China

Islamic IMI Index Returns and the SSE Sector Indices Returns

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LIST OF FIGURES

Figure No. Page No.

2.1 Breakdown of Market Capitalization of SZSE and SSE by Sector and Ownership

12 2.2 Returns of Global Islamic Funds by Asset Type (2016) 15 2.3 Top 10 Sukuk outstanding jurisdictions 2016 15 5.1 Conditional Volatilities of the Returns of the three China’s

Islamic Indices (based on conditional variances)

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5.2 Conditional Volatilities of the Returns of the Industry-based SSE Sector Indices (based on conditional variances)

51 5.3 Conditional Volatilities of the Returns of the Service-based

SSE Sector Indices (based on conditional variances)

52 5.4 Conditional Correlations between the China’s Islamic Indices

Returns and the SSE Energy Sector Index Returns

Returns and the SSE Financials Sector Index Returns

Returns and the SSE Industries Sector Index Returns

Returns and the SSE Health Care Sector Index Returns

Returns and the SSE Consumer Discretionary Sector Index Returns

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5.9 Conditional Correlations between the China’s Islamic Indices Returns and the SSE Consumer Staples Sector Index Returns

Returns and the SSE Information Technology Sector Index Returns

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5.11 Conditional Correlations between the China’s Islamic Indices Returns and the SSE Materials Sector Index Returns

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5.12 Conditional Correlations between the China’s Islamic Indices Returns and the SSE Telecommunication Sector Index Returns

61

5.13 Conditional Correlations between the China’s Islamic Indices Returns and the SSE Utilities Sector Index Returns

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CHAPTER ONE INTRODUCTION

BACKGROUND OF THE STUDY

Investment is a principal means to increase wealth. Commonly, investors or fund managers take steps to minimise the risks of investment. One of the most important strategies is investment diversification, which is widely used in various classes of assets including commodities, real estate, stocks and bonds at national and international markets. The different levels of correlation between different assets across different sectors reduce risk by diversifying the investment portfolio.

Asset correlation is a measure that statistically indicates the interdependence between two or more assets. A high correlation between assets in an investment portfolio means the investment will move in the same direction at the same time and is thereby exposed to higher risk. Lower levels of correlation means lower levels of risk. Maximising returns with the lowest potential risk is determined by asset correlation in the asset allocation process. Some countries have very open policies for cross-border investment, which helps local investors diversify their assets abroad if there is a lower correlation in the stocks of other countries compared to the local market (Masih & Masih, 1997).

Investment in a cross-sectorial level in the domestic market is also regarded as a comparatively useful strategy to decrease asset correlation if the correlation between sectors is low. With the rapid development of Islamic finance industry including Islamic capital markets, Islamic investment has become a viable alternative for diversifying investments.

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STATEMENT OF THE PROBLEM

Research on correlations in international financial markets found that the co-movement among different markets increased gradually over time in the conventional financial markets (Longin & Solnik, 1995; Johnson & Soenen, 2002; Emiris, 2004; Tiwari et al., 2013; Bentes, 2015; Deltuvaitė, 2015; Siedlecki and Papla, 2016; Zhang, Zheng, and Zeng, 2016). Some researches also highlighted the enlarged market correlation among China’s equity markets and equity markets in other countries (Johnson & Soenen, 2002;

Emiris, 2004; Tiwari et al., 2013; Arslanalp et al., 2016).

In terms of research in sector correlation, it is not as rich as studies in international market correlation. The related research on the Chinese financial market investigated the sector correlations among Shanghai and Shenzhen 300 Index (Lu Tang, 2008; Ma, 2010; Liu, 2013; Wu, 2013). The results illustrated that there were different levels of correlation between various sectors, which can provide a diversification benefit by investing in sectors with low correlation. The data also reflected different degrees of volatility and the influences of individual volatility on the entire equity market.

Some studies indicated that the international Islamic equity indices were not strongly correlated or integrated (Darrat, Elkhal, & Hakim, 2000; Marashdeh & Shrestha, 2010;

Hussin et al., 2013). While it is notable that the correlation among Islamic stock indices increased gradually as well (Mohd & Hassan, 2003; Ceylan & Dogan, 2004; Naseri &

Masih, 2014), a few current researches regarding the correlation between the conventional and Islamic market as studied by (Saiti and Masih, 2014; Mensi et al., 2015) pointed out a relative new investment strategy which offers potential diversification benefit.

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Consequently, it is interesting to investigate the co-movement of volatility and correlations among China’s sector indices and China’s Islamic indices to test for potential diversification benefit, which is not investigated by previous research.

PURPOSE OF THE STUDY

China’s population is 1.37 billion people of which 23 million are Muslim. Chinese Muslims are looking for opportunities to invest based on the principles of Islam. At the same time, as long as the Islamic investment is offering higher returns, non-Muslims in China are also willing to invest.

Currently, there is no Islamic financial market in China. Nevertheless, International financial companies such as FTSE, MSCI and DJ have designed Islamic price indices based on Shariah principles to track the average performance of selected Shariah- compliant stocks from China’s equity market. This research investigates the correlation among Chinese sectorial indices. It includes ten Shanghai Stock Exchange Sector indices and three Chinese Islamic indices including the FTSE Shariah China price index, MSCI China Islamic IMI price index and DJ Islamic Greater China price index.

The results will be analysed using the Multivariate Generalised Autoregressive Conditional Heteroscedastic (MGARCH) model to test the volatilities and correlations among selected indices and determine whether and to what extent Islamic investment can benefit Chinese investors. It is the first research to correlate between conventional and Islamic indices based on the data in China’s equity market.

RESEARCH OBJECTIVES

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This study investigates the dynamic conditional correlation between the returns of three Islamic indices for China (FTSE Shariah China price index, MSCI China Islamic IMI price index and DJ Islamic Greater China price index) and the returns of ten sectorial indices in the Shanghai Stock Exchange covering the sectors of energy, material, industrials, consumer discretionary, consumer staples, health care, financials, information technology, telecommunication and utilities to identify the diversification benefits that can be derived from Islamic investment. Examining the dynamic conditional correlation between the returns of different sectorial indices in the Shanghai Stock Exchange and the three Islamic indices for China helps answer as to whether Chinese investors can benefit from diversifying investments into Islamic stock indices and whether the Islamic indices are safe-havens for Chinese investors.

RESEARCH QUESTION

In China, can conventional investors benefit from diversifying their investment portfolio into both conventional and Islamic-oriented stock indices? In other words, are there dynamic conditional correlations between the returns of three Islamic indices for China and Shanghai sectorial indices?

SIGNIFICANCE OF THE STUDY

Even though there is no Islamic finance in China now, the increasing cooperation between China and other Muslim countries, especially those in the ‘One Silk One Road’

plan, creates space for great potential for China to develop Islamic finance in the future.

Consequently, capital markets, as a significant part of finance, play a major role in the economic system. Nevertheless, limited research has concentrated on the connection of

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Islamic finance in Chinese capital markets. As a result, this study is the first to explore the correlation of China’s Shariah-compliant indices and conventional sectorial indices to ascertain whether investment under the principles of Shariah can benefit Chinese investors. In the long-run, if diversification benefits can be found between Islamic stock indices and conventional stock indices, it will not only attract more investors to distribute money in Shariah-compliant stocks but also likely lead to the faster and deeper development of independent Islamic stock indices in China.

LIMITATIONS OF THE STUDY

The two capital markets in mainland China are the Shanghai Stock Exchange and Shenzhen Stock Exchange. Since the majority of previous studies regarding sectorial correlations took the data from SCI (Shanghai and Shenzhen) 300 sectorial indices, this paper collects data from sector indices exclusively from the Shanghai Stock Exchange as the largest capital market. Consequently, the exclusion of stocks in the Shenzhen Stock Exchange exposes a limitation that the time-varying volatility and correlations between China’s conventional sectors indices and China’s Islamic indices will be tested based on Shanghai Stock Exchange only. In other words, the correlation between the Shariah-compliant indices and conventional indices in Shenzhen Stock Exchange need

to be further investigated. In addition, even though the indices are derived from China’s equity market, and the majority of our samples are listed in Chinese Yuan, the DJ Islamic Greater China Index and FTSE Shariah China Index are listed in US dollar. In order to unite the currency, we converted the data based on US dollar into the adjusted data in Chinese Yuan by taking daily currency exchange rate from US dollar to Chinese Yuan. This means that the currency exchange rate influences the data.

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ORGANISATION OF THE RESEARCH PAPER

The remainder of the paper is organised as follows. Chapter 2 provides an overview of the development of the Chinese economy and its capital market. It summaries the development of Islamic finance especially the Islamic capital market as well as the important screening methodology in several Islamic indices. Chapter 3 discusses the theoretical foundation and provides a critical review of the previous studies on market integration from international (conventional) perspective, Islamic perspective and China’s sectorial perspective. Chapter 4 describes the methodology and data used in this study. Chapter 5 discusses the empirical findings and presents the results of the analysis. The concluding remarks are included in Chapter 6.

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CHAPTER TWO

CHINESE CONVENTIONAL FINANCIAL MARKET AND THE GLOBAL ISLAMIC FINANCIAL MARKET

2.1 INTRODUCTION

This chapter provided the necessary background for the research topic. It introduces the Chinese economy and financial development and provides an overview of China’s capital market. This is followed by a detailed introduction to the global Islamic financial system and Islamic capital market as well as the general screening methodology and specific requirements in three global Islamic indices.

2.2 BACKGROUND OF THE CHINESE ECONOMY AND FINANCIAL DEVELOPMENT

Before 1978, China followed the Soviet Union by adopting a highly centralised economic system. By the end of 1978, China decided to undertake a program of fundamental and gradual reform named “reform and opening” in the economic system by increasing the role of market mechanisms and decreasing government planning and control. This significant decision opened the doors for the Chinese economy to develop along a new path compared with the previous government-oriented economy. It is regarded as one of the most important reforms in the history of China in the 20^thcentury.

In 1979, the “period of readjustment” led to reforms aimed at expanding exports rapidly.

Consequently, four coastal special economic zones (cities) including Shenzhen, Zhuhai Shantou and Xiamen were created to develop foreign trade. The role of foreign trade in the economic reform rose far beyond expectations. Within several years from 1979 to 1986, the exports in the national income increased from less than 10% to 35%, which reflected the positive influence of the reform and drove China to develop more exports

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in the following decades. Also, in the 1980s, Chinese domestic commerce started to shift the primary burden of allocation of goods and services from the government plan to the market. Private companies and free-market activities proliferated and boomed during the period with legislation and encouragement from the government. In 1985, the production in industry, agriculture, and foreign trade almost equalled the gross national production, accounted for 46%, 33% and 20% in the GNP separately.

In 1990, China established two stock exchanges in Shanghai and Shenzhen. In 1992, Chinese leader Deng Xiaoping sought to create a “socialist market economy” in the 14^th National Communist Party Congress for deeper market reforms. In 1993, the additional long-term reforms were approved by the government aimed at developing market- oriented institutions and strengthening the centre control in the financial system with the introduction of more than 2,000 special economic zones. In the Asian Financial Crisis, China was affected but maintained economic growth at over 7% during the period.

China’s economy grew at a rate of 10% per year on average during the 1990-2004 period. In 2006, China’s total trade surpassed $1.76 trillion, which made China the world’s third-largest trading nation after the U.S. and Germany. Nowadays, China has become an international hub for manufacturing with the largest manufacturing economy in the world as well as the largest exporter of goods globally. Also, China is the world’s fastest-growing consumer market and second largest importer of goods in the world.

According to World Bank, China’s GDP raised from $ 360.86 billion in 1990 to $ 1, 211, 35 billion in 2000 to $ 6,100.62 billion in 2010 to $ 11,199.15billion in 2016. At

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the same time, the annual GDP growth rate increased rapidly from 3.9% to 10.6% in 1990-2010 and stabilised at 6.7% with only 1.2% inflation. Specifically, the data shows that the contribution to China’s GDP from the agriculture sector constantly decreased from 27% in 1990 to 9% in 2016 while the opposite trend happened to the services sector from 32% to 52% during the same period. Comparatively, the GDP contribution from the industry sector fluctuated between 40% and 46%. In terms of GDP contribution from imports and exports, both doubled from 1990 to 2010 and experienced a decrease in the following years.

2.3 OVERVIEW OF THE CHINESE CAPITAL MARKET

Since the launch of the Shanghai (SSE) and Shenzhen (SZSE) stock exchanges in 1990, the financial markets in mainland China have greatly benefited from enlarged openness and effective reforms in the last two decades.

Generally, the capital market in China can be divided into the following markets according to the initial issuance or second-hand exchange:

i. Primary market

The market in which new equities and debts are arranged and issued and also offered to existing investors. The market allows the market participants to raise new capital for funding its business operations in exchange of the issuance of bonds or shares.

ii. Secondary market

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A market that financial assets which are previously issued are exchanged or traded among investors. It is aimed at facilitating liquidity requirements of investors in the capital market.

The capital market in China can be divided into the following markets based on the regions of issuance:

i. A-share

A-shares are those local Chinese companies denominated in Renminbi, traded primarily between local investors on the Shanghai or Shenzhen stock exchanges.

Qualified Foreign Institutional Investors (QFII) who have been granted special permission by the Chinese government can also participate in this market. In 2011, Renminbi Qualified Foreign Institutional Investors Scheme was initiated, targeting at using RMB funds raised in Hong Kong by the subsidiaries of domestic fund management companies and securities companies in Hong Kong to invest in the domestic securities market.

ii. B-share

B-shares represent Chinese companies with a face value in Renminbi but listed for trading to primarily international investors in U.S. Dollars as in the Shanghai exchange, or Hong Kong Dollars as in the Shenzhen exchange. Mainland Chinese investors may also trade B-shares with legal foreign currency accounts.

iii. H-share

H shares represent Chinese companies regulated by Chinese law, but freely tradable by anyone. H shares are listed in Hong Kong and are quoted in Hong Kong Dollars—short in the “H”.

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Furthermore, the development of the capital market in China is supported by international and regional organisations such as the World Trade Organisation, International Monetary Fund (IMF), Asian Development Bank (ADB) and Asia-Pacific Economic Cooperation (APEC). At the end of 2016, China had the world’s second- largest stock market. Even excluding Hong Kong, China had a combined aggregate market capitalisation of $ 7.3 trillion in 2016. Notably, Chinese companies in 2016 raised $ 20 billion of equity capital, more than the combined amount raised in the US and Europe over the same period.

The Shanghai Stock Exchange (SSE) was founded and opened at the end of 1990. It is directly governed by the China Securities Regulatory Commission (CSRC). After 27 years, SSE has developed into a sound exchange market with four major securities categories: equities, bonds, funds and derivatives. At the end of 2016, SSE had 1182 listed companies with a total market capitalisation reaching 28.5 trillion RMB, ranking the 4^th highest market capitalisation in the world according to World Federation of Exchanges (WFE). Its total annual turnover in 2016 stood at 50.2 trillion RMB, which is listed as the top four highest globally. The total capital raised in the equities market in 2016 was 805.6 billion RMB. The bond market consists of 8077 listed bonds with the outstanding value at 6.2 trillion RMB, the annual turnover standing at 224.7 trillion RMB. The total value of the derivatives market was 43.19 billion RMB in 2016. The number of registered accounts of investors reached 224.85 million by the end of 2016.

The Shenzhen Stock Exchange (SZSE), as another self-regulated legal entity of stock exchange under the supervision of China Securities Regulatory Commission (CSRC), was also established in the end of 1990. Afterwards, the SME Board was initiated in

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SSE in May 2004. The ChiNext market (China’s second board) was launched in October 2009. There is a multi-tiered capital market framework in SSE comprising the Main Board, SME Board, and the ChiNext market. SZSE’s products cover equities, mutual funds, bonds and derivatives. Specifically, the product lines include A-shares, B-shares, indices, mutual funds (including ETFs and LOFs), fixed income products (including SME collective bonds and asset-backed securities), and diversified derivative financial products (including warrants and repurchases). According to the official website of the Shenzhen Stock Exchange, until the beginning of September 2017, there are 2,029 listed companies, 5,138 listed securities and the stock market value reached 23,922 billion RMB.

In general, the Shanghai capital market has more funds from State-Owned Enterprises while the Shenzhen capital market is preferred by non-State-Owned Enterprises especially small and medium enterprises. In terms of sectors, Shanghai is more developed in the financial sector while Shenzhen has a more obvious advantage in the development of the IT sector.

Source: HKEX

Figure 2.1 Breakdown of Market Capitalisation of SZSE and SSE by Sector and Ownership as of Jan 2017

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A research paper submitted in fulfilment of the requirement for the Master of Science (Islamic Banking and Finance)

DOES ISLAMIC INVESTMENT HELP THE CHINESE INVESTORS? EVIDENCE FROM CHINA BASED ON

MGARCH-DCC APPROACH

BY

MA MUXING

A research paper submitted in fulfilment of the requirement for the Master of Science (Islamic Banking and Finance)

IIUM Institute of Islamic Banking and Finance International Islamic University Malaysia

JANUARY 2018

ABSTRACT

ﺚﺤﺒﻟا ﺔﺻﻼﺧ

ﺑﺎ ﻢﻬﺳﻷا قﻮﺳ ﰲ ﻦﻳﺮﻤﺜﺘﺴﳌا ةدﺎﻔﺘﺳا ﺔﻴﻧﺎﻜﻣا ىﺪﻣ ﺔﺳارد ﱃا ﺚﺤﺒﻟا فﺪﻬﻳ ﻷا ﰲ ﻢﺗﻬارﺎﻤﺜﺘﺳا ﻊﻳﻮﻨﺗ ﻦﻣ ﲔﺼﻟ

ﻮﺘﳌا ﻢﻬﺳ ﻊﻣ ﺔﻘﻓا

قﻮﺴﻟا) ﺔﻴﻣﻼﺳﻹا ﺔﻌﻳﺮﺸﻟا :ﻦﻣ ﻞﻛ ﺬﺨﺘﻳ ﺚﺤﺒﻟا اﺬﻫ ،ﺪﻳﺪﺤﺘﻟا ﻪﺟو ﻰﻠﻋ .(ﺔﻴﻣﻼﺳﻹا

ﲔﺼﻟا ﰲ ﺔﻴﻣﻼﺳﻹا ﻢﻬﺳﻸﻟ تاﺮﺷﺆﻣ

و

ﺔﺳارﺪﻟا مﺪﺨﺘﺴﺗ .ﺔﺳارﺪﻠﻟ تﺎﻨﻴﻌﻛ يﺎﻬﻐﻨﺷ ﺔﺻرﻮﺑ عﺎﻄﻗ ﻦﻣ تاﺮﺷﺆﻣ ﳕ

ﻻاو تاﲑﻐﺘﳌا دﺪﻌﺘﻣ ﺶﺗرﺎﻏ ﻲﺟذﻮ طوﺮﺸﳌا طﺎﺒﺗر

ﺷﺆﳌا ﺪﺋاﻮﻌﻟ ﺖﻗﻮﻟا روﺮﲟ ةﲑﻐﺘﳌا ﻂﺑاوﺮﻟا ﺮﻳﺪﻘﺘﻟ ﻲﻜﻴﻣﺎﻨﻳﺪﻟا ﺎﺒﻳﺮﻘﺗ ﻲﻄﻐﺗ ﱵﻟا و ،ةرﺎﺘﺨﳌا تاﺮ

ءاﺪﺘﺑا ﺔﻴﻣﻮﻴﻟا ت�ﺎﻴﺒﻟا ﻦﻣ تاﻮﻨﺳ

ﻦﻣ

ﺲﻄﺴﻏأ / بآ

ﱃإ

ﱪﻤﺘﺒﺳ / لﻮﻠﻳأ

ﻢﻬﺳﻷا ﰲ ﻦﻳﺮﻤﺜﺘﺴﳌا نﺎﻜﻣﺑﺈ ﻪﻧأ ﱃإ ﺞﺋﺎﺘﻨﻟا ﲑﺸﺗ ،ﻚﻟﺬﻟ ﺎﻌﺒﺗو .

ﻣ اذإ ﺮﺜﻛأ اوﺪﻴﻔﺘﺴﻳ نأ ﻢﻬﻨﻜﳝو ،ﺔﻴﻣﻼﺳﻹا قﻮﺴﻟا ﻦﻣ ةدﺎﻔﺘﺳﻻا ﲔﺼﻟﺑﺎ ﺔﻳﺪﻴﻠﻘﺘﻟا ﺳﻹا قﻮﺴﻠﻟ ﺰﻧﻮﺟواد ﺮﺷﺆﻣ اﻮﻠﻤﻌﺘﺳا ﺎ

ﻴﻣﻼ ﺔ

ﳏ ﰲ ىﱪﻜﻟا ﲔﺼﻟﺑﺎ ﻢﺗﻬﺎﻈﻔ

ﻻا ﻲﺴﻴﺋر ﻞﻜﺸﺑ نوﺮﻤﺜﺘﺴﻳ ﻦﻳﺬﻟا ﲔﻳﺪﻴﻠﻘﺘﻟا ﻦﻳﺮﻤﺜﺘﺴﳌا نﺎﻜﻣﺑﺈ ﻪﻧأ ﱃإ ﺞﺋﺎﺘﻨﻟا ﲑﺸﺗ ،ﻚﻟﺬﻛ .ﺔﻳرﺎﻤﺜﺘﺳ

ﺔﻴﺤﺼﻟا ﺔﻳﺎﻋﺮﻟا ﻞﺜﻣ ﺔﻳﺪﻴﻠﻘﺘﻟا تﺎﻋﺎﻄﻘﻟا ﰲ نأ ﺔﻴﺳﺎﺳﻷا ﺔﻴﻛﻼﻬﺘﺳﻻا داﻮﳌاو

ﺎﻗ اذإ ﺮﺜﻛأ اوﺪﻴﻔﺘﺴﻳ ﳏ ﻊﻳﻮﻨﺘﺑ اﻮﻣ

ﻢﺗﻬﺎﻈﻔ ﻻا ﺔﻳرﺎﻤﺜﺘﺳ

ﺔﻴﻣﻼﺳﻹا قاﻮﺳﻷا ﰲ .

،مﻮﻤﻌﻟا ﻰﻠﻋ ﻦﻣ

ﺮﻓﻮﺗ ﺚﺤﺒﻟا اﺬﻫ ﺞﺋﺎﺘﻧ آ

ﺔﻣﻮﻜﳊا ﰲ تاراﺮﻘﻟا ﻲﻌﻧﺎﺼﻟ ةﺪﻳﺪﺟ قﺎﻓ ﻞﺟا ﻦﻣ ﺔﻴﻨﻴﺼﻟا

ﺿو ﻊ

ﻻا ﺰﻳﺰﻌﺘﺑ ﺔﻠﻴﻔﻛ ﻂﻄﺧو تﺎﺳﺎﻴﺳ ﻼﺳﻹا ﺔﻌﻳﺮﺸﻟا ﻊﻣ ﺔﻘﻓاﻮﺘﳌا تارﺎﻤﺜﺘﺳ

د�ز ﰲ ﺎﻫروﺪﺑ ﻢﻫﺎﺴﺗ ﱵﻟا و ﺔﻴﻣ ة

ﻻا ﻮﳕ لﺪﻌﻣ دﺎﺼﺘﻗ

ﲏﻴﺼﻟا .

APPROVAL PAGE

DECLARATION

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

THE IMPACT OF MOBILE INTERFACE DESIGN ON INFORMATION QUALITY OF M-GOVERNMENT SITES

ACKNOWLEDGEMENTS

TABLE OF CONTENTS

LIST OF TABLES

CHAPTER ONE INTRODUCTION

CHAPTER TWO

CHINESE CONVENTIONAL FINANCIAL MARKET AND THE GLOBAL ISLAMIC FINANCIAL MARKET