Islamic investing

Abstract

Using a large international sample of 35 developed and emerging markets, we analyze whether Islamic indices exhibit a different performance to conventional benchmarks. While there is no compelling evidence of performance differences in robust Sharpe ratio tests and after controlling for market risk, we find a significantly positive four‐factor alpha for the aggregate developed markets region. This outperformance stems, however, mainly from the U.S. and is largely attributable to the exclusion of financial stocks in Sharia‐screened portfolios. As the extensive downturn of financials is related to the recent financial crisis, we do not argue that this outperformance will continue over time. The style analysis reveals that Islamic indices invest mainly in growth stocks and positive momentum stocks. This, for a passive portfolio intriguing result can, however, be explained by the strong sector allocation towards energy firms and their strong momentum characteristic during the sample period.

Is Socially Responsible Investing (SRI) in Stocks a Competitive Capital Investment? A Comparative Analysis Based on the Performance of Sustainable Stocks

“…This test is the best-known traditional test for performance comparison (Auer and Schumacher, 2013;Walkshäusl and Lobe, 2012). This standard approach is restricted to the assumptions that excess returns are normally distributed and serially uncorrelated (Auer and Schumacher, 2013).…”

“…This standard approach is restricted to the assumptions that excess returns are normally distributed and serially uncorrelated (Auer and Schumacher, 2013). In addition, this test is not useful when tails are heavier than the normal distribution (Walkshäusl and Lobe, 2012). The bootstrap test proposed by Ledoit and Wolf (2008) could have been a reasonable second test.…”

Does Shariah Compliant Stocks Perform Better than the Conventional Stocks? A Comparative Study Stocks Listed on the Australian Stock Exchange

“…Investments in financial instruments with fixed income, such as, preferred stocks, bonds and some derivatives (e.g. options) are unacceptable as they promise a fixed rate of return and grant no voting rights (Walkshäusl and Lobe, 2012). Furthermore, Islamic investors are not permitted to purchase stocks of companies whose main business activities are alcohol, gambling, conventional financial services, entertainment, pork-related products, tobacco, and weapons (Islamic Finance & Investment, 2014).…”

“…For example, the Kuala Lumpur Stock Exchange Shari'ah Index (KLSESI) introduced by Bursa Malaysia (the Malaysian Stock Exchange) is considered to be an important mechanism of promoting the accomplishment of the Islamic capital markets plan. According to Walkshäusl and Lobe (2012), Shariah-complaint assets are in access of $939 billion worldwide and over 600 Islamic funds are available, thus investors are shifting their assets from actively managed mutual funds to passive index-based investments.…”

Stock Market Return and Volatility Spillovers: The Case of Selected Muslim Majority Countries

“…On the other hand, the countries sharing borders or same region are more connected like Turkey and Egypt, Indonesia and Japan, etc. The low value of connectedness index within the Muslim markets shows that they are less prone to risk transversal from the global market as empirically proved in the case of the Islamic indices (Al-Khazali, Lean, & Samet, 2014;El Mehdi & Mghaieth, 2017;Walkshausl & Lobe, 2012). Islamic indices are Sharī'ah-compliant and hence, we can conjecture that the prohibition of interest and gharrar is not only a structural or institutional factor in the financial markets but also a behavior deeply rooted in the Muslim population which translates into risk preferences collectively.…”