Islamic capital markets : theory and practice

748 Pages·2012·5.891 MB·English

by  Krichene, Noureddine

c01 14November2012;14:7:1
Islamic Capital
Markets
ffirs 10November2012;12:30:20
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Islamic Capital
Markets
Theory and Practice
NOUREDDINE KRICHENE
John Wiley & Sons Singapore Pte. Ltd.
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Contents
Preface xv
Acknowledgments xxi
Glossary of Arabic Terms xxiii
PART ONE
Islamic Capital Markets: Tools of Securities Investment, Asset Pricing,
Risk Management, and Portfolio Performance
CHAPTER 1
Capital Theory and Islamic Capital Markets 3
On the Nature of Capital 5
On the Nature of Interest and Profit 10
Capital Theory in Islamic Finance 12
Time Preference and Capital Markets 13
Capital Productivity: The Intertemporal Production Opportunity Set 18
General Equilibrium: Time Preference and Capital Productivity 22
Model of Capital as a Subsistence Fund 26
Capital as an Engine of Growth 29
The Capital Market and the Economy 34
The Intermediation Role of the Capital Market 43
Summary 44
References 45
Questions 45
CHAPTER 2
Portfolio Theory and Risk–Return Tradeoff 47
Market Uncertainty 48
Portfolio Diversification Theory 52
Portfolio Diversification in the Case of Two Risky Assets 56
A Model of a Riskless Asset and a Risky Asset 59
Asset Pricing Based on Risk–Return Tradeoff 62
The Security Market Line 68
Efficiency Frontier, Capital Market Line, Characteristic Line,
and Security Market Line 70
vii
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viii CONTENTS
The Cost of Capital Based on the Capital Asset Pricing Model 71
Summary 72
References 73
Questions 73
CHAPTER 3
The Analytics of Sukuks 75
Valuation of an Asset 75
Valuation of Sukuks 78
Yield to Maturity 79
Reinvestment of Sukuk Coupons 79
The Par Yield 80
Spot Rates and Forward Rates 81
The Term Structure of Rates of Return 89
Sukuk Duration 94
Sukuk Convexity 100
Immunization of Sukuk Portfolio 104
Summary 110
References 111
Questions 111
CHAPTER 4
Islamic Stocks 117
Sharia Screening 117
Islamic Indexes 118
Speculation and Gambling 119
Stock Yield 122
Common Stock Valuation 125
Forecasting Stock Prices 128
Fundamental and Technical Analysis 135
The Efficiency Hypotheses of Stock Markets 138
Evaluating Companies 142
Mechanics of Trading 144
Summary 150
References 152
Questions 152
CHAPTER 5
The Cost of Capital 155
Objective of the Firm: Market Value Maximization and the Cost of Capital 156
Project Selection: The Hurdle Rate 157
Defining Capital Cost: The Discount Rate 158
The Net Cash Flow 160
The Present Value Formula 161
Relationship between Risk and the Cost of Capital 163
Estimating the Cost of Equity Capital and Overall Cost of Capital 166
Capital Asset Pricing Model (CAPM) 168
Risk-Adjusted versus Certainty-Equivalent Discount Rates 172
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