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...
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| Format: | Proceeding Paper |
| Language: | English English |
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2014
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| 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 |
| _version_ | 1848781378234089472 |
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| author | Haron, Razali |
| author_facet | Haron, Razali |
| author_sort | Haron, Razali |
| building | IIUM Repository |
| collection | Online Access |
| 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. |
| first_indexed | 2025-11-14T15:48:37Z |
| format | Proceeding Paper |
| id | iium-37242 |
| institution | International Islamic University Malaysia |
| institution_category | Local University |
| language | English English |
| last_indexed | 2025-11-14T15:48:37Z |
| publishDate | 2014 |
| recordtype | eprints |
| repository_type | Digital Repository |
| 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 Proceeding Paper 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. |
| spellingShingle | HG4001 Financial management. Business finance. Corporation finance. Haron, Razali Gharar and mispricing of equity warrants, Malaysian evidence |
| title | 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_short | Gharar and mispricing of equity warrants, Malaysian evidence |
| title_sort | gharar and mispricing of equity warrants, malaysian evidence |
| topic | HG4001 Financial management. Business finance. Corporation finance. |
| 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 |