STOCK SCREENING METHODOLOGIES IN BANGLADESH AND MALAYSIA: A COMPARATIVE STUDY

Abstract

The study aims to compare and critically evaluate the stock screening practices in stock exchanges in Bangladesh and Malaysia. The specific objectives determined to fulfill the aims are: (i) To review some of the Islāmic equity market norms along with juristic views (ii) To review the prevalent practices of stock screening methods used by international index providers (iii) To evaluate critically and compare the stock screening methodology used by Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE), and Bursa Malaysia. The study is descriptive in nature. Secondary data is utilized and collected from books, standards, journal articles and relevant publications. AAOIFI standards, OIC Fiqh Academy resolutions etc. are referenced as needed. DSE, CSE and Bursa differ in formulating ratios, denominators, numerators and in determining benchmarks. The study finds that Bursa uses two thresholds to measure Sharī’ah non-compliance, whereas DSE and CSE use a single benchmark, 5% and 4% respectively. For financial screening, DSE uses the market value of equity as a numerator whereas CSE and Bursa use total assets as a numerator. Due to these differences, one company may be included in the Sharī’ah Index in Bangladesh, but not in Malaysia and vice versa.