This paper provides evidence of a significant exchange rate effect on stock index returns using data from seven selected countries practicing free-floating exchange rate regimes. This research uses parity and asset pricing theories, thus placing it within the monetary-cum-economics framework for international asset pricing. In this study, we apply a system of seemingly unrelated regression to control for unobserved heterogeneity and cross-sectional dependence. The findings constitute evidence of a statistically significant exchange rate impact on stock index returns across selected countries. These findings can be considered as falling under the arbitrage pricing approach of the international capital asset pricing model of Solnik who also used the parity-theoretical framework on exchange rate determination.

Bond yields of Treasury and corporate bonds are observed in a listed exchange. This article reports the findings on the market yield behaviour of two types of debt securities in the same exchange, the sharia-compliant sukuk bonds and the normal conventional bonds. There are 17 exchanges where sukuk bonds are traded, and the outstanding value is estimated at US$ 1,200 billion. The average yields of sukuk Treasury bonds are significantly higher (premium) than that of conventional Treasury bonds. On the other hand, investors in the sukuk corporate bonds receive slightly lower returns (discount) of about 25 basis points in the case of long-term sukuk bonds. To the best of our knowledge, this is the first study to verify these differences using appropriate advanced econometric methods. These results have far-reaching implications for the market practices as well as for teaching of bond pricing behaviour since this new form of debt markets is growing at about 17 per cent a year. JEL Classification: F23, F31, G12

Purpose: This paper aims to report practice-relevant anomalous investment yield behavior of two types of bonds – Type A, the mainstream bond, and Type B, which isSukuk– both having similar cash-flow-relevant characteristics.Design/methodology/approach: Bond valuation theory suggests that yields to investors of similarly rated bonds ought to be same. The authors collected time-series data on A and B bonds, all being coupon-paying bonds with similar rating and similar tenor as two matched samples traded in a bond exchange. To ensure the results are extended to different bond sectors, the data set was separated into treasury bonds as risk-free and corporate bonds as risky ones. The data set was further sub-divided into short-, medium- and long-tenor bonds. As the data straddle the Global Financial Crisis period, the authors use appropriate econometric method to control the possible effect from the crisis.Findings: The average and median yields on Type A bond are significantly different from those of Type B. The test results show significant and systematic differences: treasury bonds of Type A returns yield lower than treasury bonds of Type B; the yields of corporate mainstream bonds (A) are higher than the yields ofSukuk(B). The authors observe these findings constitute a puzzle, being anomalous to theory.Originality/value: This paper is original in that it is documenting significant differences in pricing of equivalent bonds. This has both theory and practice implications for fixed-income security market practices. The evidence is very strong to suggest that the identical types of bonds may have missing variable that contributes to the difference. Therefore, further research to identify the missing variable is necessary.

We discuss currency volatility as a measure of currency instability using 15 currencies from developed and emerging economies. The IMF and others have recorded how countries manage their exchange rates to promote sustainable economic growth by designing exchange rate regimes as a pillar within economic policy. The findings herein show how to track currency instability using a given currency's volatility against the volatility of a benchmark currency of importance to the given currency. This is termed relative volatility. The study proceeds to test whether the parity factors and country risk factor are significantly correlated with exchange rate relative volatility.