A Comparative Research Between Conventional and Islamic Bank System of Pakistan: Liquidity Risk Management

The function of the bank is differentiated into budgetary middle people, facilitator and supporters. Hence, the banks keep themselves as confided body to their trade and business partners. Assets hazard could emerge and to be seen out of such diverse tasks since they are entirely on stake in terms of accessibility. When assets are set out by the non-members supplementary actions are necessary to be taken by the Islamic banks in order to balance assets and liquidity with sharia standards. The purpose of this exploration is to find the liquidity risk associated to the dissolvability of finance based foundation in order to evaluate assets risk management via parallel evaluation between Islamic and other Pakistani banks. This paper inspects the significance of the magnitude of the bank, networking capital margin on equity, finical sufficiency plus return on Resources and Assets (RoA), along assets stake organization in conventional plus Islamic banks of the Pakistan. The investigation relays on auxiliary knowledge that is over the period of four years. For instance, during 2017-2018, the investigation explored positive, hence, less significant relationship of magnitude of the firm plus networking cash surge to net assets along with liquidity vulnerability in similar models. Moreover, financial competence share in other banks plus margin of assets in Islamic banks is found encouraging and prominent at ten percent 10% gradation equivalent.

The Disposition effect in Pakistani investors

Behavioral finance is an emerging field and limited work has been done in this field in the developing countries. This field of study comes into play when the traditional rational theories fail to explain the abnormalities in the market behavior. It incorporates human psychology and sociology to explain market anomalies. In this study, one specific market behavior, disposition effect, is analyzed, which is driven by human psychology. The disposition effect is the tendency of investors to sell winning stocks too early and holding losing stocks for toe long. As per the traditional market theory, a rational investor would sell off stock with falling prices to minimize portfolio losses. However, if intuitive thinking overpowers a rational decision-maker, the investor would want to keep holding on a losing stock in anticipation of the rising in price, thus aggregating portfolio losses. In addition to this, the relationship between the holding period and the illiquidity of the stock is analyzed. It is believed that stocks with greater illiquidity require higher transaction costs to be traded as the bid-ask spread is higher; therefore stocks with greater illiquidity should have longer holding periods. To empirically test these theories, data of the Pakistan Stock Exchange is taken from the fiscal year 2012 to 2017 for all non-financial firms. The variables included are holding period, annual return, illiquidity, market capitalization and volatility of each stock. The data type demands a static panel data analysis, where the unit of the cross-section is each firm and each year is the unit of time-series. The intercept model of the panel data analysis is used to analyze the data using both random effect and fixed-effect model. Pooled OLS regression is also done to get the best results out of all three models. According to literature, there is the problem of simultaneity between the holding period and illiquidity, which causes biased estimates of parameters due to endogeneity. To overcome the issue, a lagged illiquidity instrument is used in place of the endogenous variable. Thus, our estimation method is converted to two-stage least square estimation. The results validate the literature, by showing a positive relationship between the holding period and illiquidity. Furthermore, in the second series of regression, results show that Pakistani investors are rational decision-makers. However, after the sample is dissected, it is shown that investors, who invest in firms with greater trading activity and larger firm size, tend to exhibit disposition effect