By Mughees Shaukat
Abstract
A unique feature of Islamic banking, in theory, is its profit-and-loss sharing (PLS) paradigm. In practice, however, we find that Islamic banking is not very different from conventional banking in devising their rates of return. There appears to be a clear contingency. Using wavelets analysis in investigating such relationships between the conventional deposit returns and their influence on the Islamic versions, our study on Malaysia shows that Islamic deposits returns are closely pegged to conventional deposits rates. In this study, the proposed procedure is applied to a sample composed of 64 monthly observations spread over 2005- April 2011. It has proved that the contingency between the returns of deposits and their betas are more robust at short scales and higher frequencies. The study has also tried to go more deeper and attempted to observe even a homogeneous comparison between Islamic saving and Investemnt deposit returns and hence the influence of the former on the later. It was found that there is a constant casual relation and this mutual inclusivness was much more evident in longer scales or lower frequency instances.
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