Alaa Alaabed - Independent Researcher (original) (raw)

Drafts by Alaa Alaabed

April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars o... more April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars of the late 20th century, Ayatullah al-Sayyid al-Shaheed Muhammad Baqir al-Sadr, RidhwanuAllahi ta’aala ‘alayh. Al-Sayyid al-Shaheed was an extraordinary and unique genius whose personal and intellectual accomplishments as a believing and practicing Muslim serve as example for others striving for perfection intended for humans by their Creator.

While the writings of al-Sadr were quite timely and important in his own time, understanding them at the present is crucial as the search for alternative socio-economic paradigms that can more effectively respond to the problems of humanity has intensified. In all of his discourses, al-Sadr was a first-rate logician who accorded logic and objective truth central and active roles without losing an opportunity to display the passion of his belief that Islam provides solutions to problems societies face.

Al-Sadr’s writings constitute an integrated and interrelated whole. Singling out a specific topic in exclusion of analysis of how it is related to his philosophy does not do justice to him, to his writings or to his readers. That said, this paper is a modest attempt to provide a brief commentary on a number of al-Sadr’s brilliant insights in presenting the theory and practice of Iqtisad (Islam’s vision of ideal economy). The point bears emphasis that this paper is not a commentary on the entirety of the views of al-Sadr’s on Iqtisad; to do some degree of justice to his views requires volumes. The paper instead focuses on some of his insights—those that economic analysis itself discovered years after him, with the purpose of indicating that the Iqtisadi contributions of al-Sadr and his genius deserve far deeper and more intensive scholarly treatment than they have received so far.

Papers by Alaa Alaabed

SEDONA, 2016

In theory, risk-sharing-based financing (RSF) is considered a corner stone of Islamic finance. It... more In theory, risk-sharing-based financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however, this feature of Islamic financial products is almost negligible. Instead, debt-based instruments, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitably exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest rate risk. Empirical evidence has, thus far, confirmed such exposures, despite Islamic banks' interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our results provide support to the "stability" view of risk-sharing-based financing. This suggests RSF as the way forward for risk management at Islamic banks, in the absence of widely acceptable Shariah compliant hedging instruments. Further support to the stability view is given by evidence of counter-cyclicality. Unlike debt-based lending that inflates artificial asset bubbles through credit expansion during the upswing of business cycles, RSF is negatively related to GDP growth. Our results also imply a significantly strong relationship between risk-sharing deposits and RSF. However, the pass-through of these deposits to RSF is economically low. Only about 40% of risk-sharing deposits are channeled to risk-sharing financing. This raises questions on the validity of the industry's claim that depositors accustomed to conventional banking shun away from risk sharing and signals potential for better balance sheet management at Islamic banks. Overall, our findings suggest that, on the one hand, Islamic banks can gain 'independence' from conventional banks and interest rates through risk-sharing products, the potential for which is enormous. On the other hand, RSF could enable policy makers to improve systemic stability and restrain excessive credit expansion through its countercyclical features.

Undermining shared prosperity? Risk shifting and Islamic banking

In theory, risk sharing based Financing (RSF) is considered a corner stone of Islamic finance. It... more In theory, risk sharing based Financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however thus feature of Islamic financial products is almost negligible. Instead, debt-based instrument, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitable exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest risk rate. Empirical evidence has, thus far, confirmed such exposures, despite Islamic bank’s interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our result provide support to the “stability” view of risk-sharing-based financing. This suggest RSF as the way forward for risk management at Islamic banks, in the ab...

As far as the author's knowledge, the paper is the first attempt dedicated to understanding the r... more As far as the author's knowledge, the paper is the first attempt dedicated to understanding the risk and volatility of constituents of the young and rapidly growing Islamic mutual funds' industry. The novelty of our approach lies in the usage of wavelet tools to high-frequency financial market data, which allows us to understand the relationship between returns of funds of different sizes in a completely different way. Major part of economic time series analysis is done in time or frequency domain separately. Wavelet analysis can combine these two fundamental approaches, so we can work in time-frequency domain. Using wavelet coherence, we have gained valuable insights into the volatility and continuous dynamics of cross-correlations between small, medium and large size Islamic mutual funds.

Borsa Istanbul Review, 2016

The purpose of this paper is to test the growing converging views regarding the destabilizing and... more The purpose of this paper is to test the growing converging views regarding the destabilizing and growthhalting impact of interest-based debt financial system. The views are as advocated by the followers of Keynes and Hyman Minsky and those of Islam. Islam discourages interest rate based debt financing as it considers that it is not conducive to productive activities and to human solidarity. Likewise, since the onset of the crisis of 2007/2008, calls by skeptics of mainstream capitalism has been renewed, to reconsider the dynamics of the prevailing financial system with emphasis on its untamed credit-creating capacity and link (or rather delink) to real sector transactions. The paper applies a threshold regression model to Malaysian data and finds that the relationship between growth and financial development is non-linear. A threshold is estimated, after which credit expansion negatively impacts GDP growth. While the post-threshold negative relationship is found to be statistically significant, the estimated positive relationship at lower levels of financial development is insignificant. The findings are hoped to provide insights to monetary authorities for better growth-promoting policy-making..

Risk shifting and Islamic banking

International Journal of Islamic Economics, Aug 26, 2019

This paper empirically investigates the effectiveness of monetary policy transmission in the Unit... more This paper empirically investigates the effectiveness of monetary policy transmission in the United States from 1975-2010 using the Long-Run Structural Modelling (LRSM) and the techniques of error correction and variance decompositions. The results indicate that the domestic credit and exchange rate channels are relatively effective in influencing the real GDP per capita, and so is inflation-targeting, while the interest rate channel does not appear to play an important role as a monetary transmission mechanism, bearing in mind the interlinkages between the channels. The empirical analysis suggests that policy measures and structural reforms must be targeted accordingly in order to promote the effectiveness of monetary transmission mechanisms in the US and similar countries.

Size, correlations, and diversification: New evidence from an application of wavelet approach to the emerging Islamic mutual fund industry

Borsa Istanbul Review, Aug 1, 2019

Benchmarking objectives of Shari'ah (Islamic law): index and its performance in select OIC countries

International Journal of Pluralism and Economics Education

Investigating risk shifting in Islamic banks in the dual banking systems of OIC member countries: An application of two-step dynamic GMM

Risk Management, 2016

April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars o... more April 9, 2020 marks the 40th Anniversary of the martyrdom of one of the most brilliant scholars of the late 20th century, Ayatullah al-Sayyid al-Shaheed Muhammad Baqir al-Sadr, RidhwanuAllahi ta’aala ‘alayh. Al-Sayyid al-Shaheed was an extraordinary and unique genius whose personal and intellectual accomplishments as a believing and practicing Muslim serve as example for others striving for perfection intended for humans by their Creator.

While the writings of al-Sadr were quite timely and important in his own time, understanding them at the present is crucial as the search for alternative socio-economic paradigms that can more effectively respond to the problems of humanity has intensified. In all of his discourses, al-Sadr was a first-rate logician who accorded logic and objective truth central and active roles without losing an opportunity to display the passion of his belief that Islam provides solutions to problems societies face.

Al-Sadr’s writings constitute an integrated and interrelated whole. Singling out a specific topic in exclusion of analysis of how it is related to his philosophy does not do justice to him, to his writings or to his readers. That said, this paper is a modest attempt to provide a brief commentary on a number of al-Sadr’s brilliant insights in presenting the theory and practice of Iqtisad (Islam’s vision of ideal economy). The point bears emphasis that this paper is not a commentary on the entirety of the views of al-Sadr’s on Iqtisad; to do some degree of justice to his views requires volumes. The paper instead focuses on some of his insights—those that economic analysis itself discovered years after him, with the purpose of indicating that the Iqtisadi contributions of al-Sadr and his genius deserve far deeper and more intensive scholarly treatment than they have received so far.

SEDONA, 2016

In theory, risk-sharing-based financing (RSF) is considered a corner stone of Islamic finance. It... more In theory, risk-sharing-based financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however, this feature of Islamic financial products is almost negligible. Instead, debt-based instruments, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitably exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest rate risk. Empirical evidence has, thus far, confirmed such exposures, despite Islamic banks' interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our results provide support to the "stability" view of risk-sharing-based financing. This suggests RSF as the way forward for risk management at Islamic banks, in the absence of widely acceptable Shariah compliant hedging instruments. Further support to the stability view is given by evidence of counter-cyclicality. Unlike debt-based lending that inflates artificial asset bubbles through credit expansion during the upswing of business cycles, RSF is negatively related to GDP growth. Our results also imply a significantly strong relationship between risk-sharing deposits and RSF. However, the pass-through of these deposits to RSF is economically low. Only about 40% of risk-sharing deposits are channeled to risk-sharing financing. This raises questions on the validity of the industry's claim that depositors accustomed to conventional banking shun away from risk sharing and signals potential for better balance sheet management at Islamic banks. Overall, our findings suggest that, on the one hand, Islamic banks can gain 'independence' from conventional banks and interest rates through risk-sharing products, the potential for which is enormous. On the other hand, RSF could enable policy makers to improve systemic stability and restrain excessive credit expansion through its countercyclical features.

Undermining shared prosperity? Risk shifting and Islamic banking

In theory, risk sharing based Financing (RSF) is considered a corner stone of Islamic finance. It... more In theory, risk sharing based Financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however thus feature of Islamic financial products is almost negligible. Instead, debt-based instrument, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitable exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest risk rate. Empirical evidence has, thus far, confirmed such exposures, despite Islamic bank’s interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our result provide support to the “stability” view of risk-sharing-based financing. This suggest RSF as the way forward for risk management at Islamic banks, in the ab...

As far as the author's knowledge, the paper is the first attempt dedicated to understanding the r... more As far as the author's knowledge, the paper is the first attempt dedicated to understanding the risk and volatility of constituents of the young and rapidly growing Islamic mutual funds' industry. The novelty of our approach lies in the usage of wavelet tools to high-frequency financial market data, which allows us to understand the relationship between returns of funds of different sizes in a completely different way. Major part of economic time series analysis is done in time or frequency domain separately. Wavelet analysis can combine these two fundamental approaches, so we can work in time-frequency domain. Using wavelet coherence, we have gained valuable insights into the volatility and continuous dynamics of cross-correlations between small, medium and large size Islamic mutual funds.

Borsa Istanbul Review, 2016

The purpose of this paper is to test the growing converging views regarding the destabilizing and... more The purpose of this paper is to test the growing converging views regarding the destabilizing and growthhalting impact of interest-based debt financial system. The views are as advocated by the followers of Keynes and Hyman Minsky and those of Islam. Islam discourages interest rate based debt financing as it considers that it is not conducive to productive activities and to human solidarity. Likewise, since the onset of the crisis of 2007/2008, calls by skeptics of mainstream capitalism has been renewed, to reconsider the dynamics of the prevailing financial system with emphasis on its untamed credit-creating capacity and link (or rather delink) to real sector transactions. The paper applies a threshold regression model to Malaysian data and finds that the relationship between growth and financial development is non-linear. A threshold is estimated, after which credit expansion negatively impacts GDP growth. While the post-threshold negative relationship is found to be statistically significant, the estimated positive relationship at lower levels of financial development is insignificant. The findings are hoped to provide insights to monetary authorities for better growth-promoting policy-making..

Risk shifting and Islamic banking

International Journal of Islamic Economics, Aug 26, 2019

This paper empirically investigates the effectiveness of monetary policy transmission in the Unit... more This paper empirically investigates the effectiveness of monetary policy transmission in the United States from 1975-2010 using the Long-Run Structural Modelling (LRSM) and the techniques of error correction and variance decompositions. The results indicate that the domestic credit and exchange rate channels are relatively effective in influencing the real GDP per capita, and so is inflation-targeting, while the interest rate channel does not appear to play an important role as a monetary transmission mechanism, bearing in mind the interlinkages between the channels. The empirical analysis suggests that policy measures and structural reforms must be targeted accordingly in order to promote the effectiveness of monetary transmission mechanisms in the US and similar countries.

Size, correlations, and diversification: New evidence from an application of wavelet approach to the emerging Islamic mutual fund industry

Borsa Istanbul Review, Aug 1, 2019

Benchmarking objectives of Shari'ah (Islamic law): index and its performance in select OIC countries

International Journal of Pluralism and Economics Education

Investigating risk shifting in Islamic banks in the dual banking systems of OIC member countries: An application of two-step dynamic GMM

Risk Management, 2016