Modelling the Return of Shariah with Underlying Indices of National Stock Exchange of India: A Case of 3SLS and GMM Estimation

Abstract

Shariah indices can be used to construct socially reliable investment products that are attractive for those, who do not wish to invest in undesired business. National Stock Exchange of India introduced Nifty 50 Shariah and Nifty 500 Shariah indices to provide alternative i The study is an attempt to reveal the relationship between Nifty 50 Shariah and Nifty 500 Shariah with their underlying indices, Nifty 50 and Nifty 500.For this purpose a period of 01/01/2007 to 31/12/2015 is taken. Based on various objectives, techniques like Descriptive statistics, Correlation, Co 3SLS and GMM estimation are used. It is concluded that return of Shariah Indices are better and risk is lesser, than underlying indices. These indices are the better option for portfolios.

On being Sharīʿah compliant in equity investments: impact of investment horizon andmarket volatility

“…However, this paper differs from the above in the frequency of analysis. Siddiqui and Sheikh (2016) report lower volatility of the SCEIs, for the period 2007-2015, on the same indices, but the authors do not verify for statistical significance. However, risks of both passive and active SCEIs significantly differ from their non-Sharīʿah counterparts during periods of low market volatility, in the shorter investment horizons.…”

“…Due to the absence of the sizable number of Islamic or Sharīʿah-compliant mutual funds offered in India, Indian studies considered Sharīʿah Indices as proxies of SCEIs. While Munusamy and Natarajan (2011) during the period 2007-2010, did not find any significant difference between the returns of the Nifty Sharīʿah 50 Index and Nifty 50 Index; Siddiqui and Sheikh (2016) found that Sharīʿah Indices yield relatively better returns. Habib and Islam (2014) have shown that S&P BSE 500 Sharīʿah underperforms S&P BSE 500.…”

“…In summary, for the purpose of comparison, this paper is closer to that of Elfakhani et al (2005) in terms of approach to analysis. It is similar to that of Siddiqui and Sheikh (2016), w. r.t the Indian context and proxies used for analysis. Otherwise, it is significantly different in terms of the dimensions being investigated, such as the impact of investment horizons and market volatility on return and risk performance of SCEIs and explicit discussion on unsystematic risk, selectivity and market timing.…”

“…All these studies concur that the volatility of Sharīʿah Indices is comparatively lower than the non-Sharīʿah Indices. On the long-term co-integration, Habib and Islam (2014), found the existence of long-term co-integration between S&P BSE Sharīʿah 500 and S&P BSE 500; however, Siddiqui and Sheikh (2016) did not find any long-term co-integration between Nifty's Sharīʿah Indices and Nifty's conventional Indices.…”

“…Almost all the studies have considered either daily (Munusamy and Natarajan, 2011;Rizvi and Arshad, 2014;Siddiqui and Sheikh, 2016;Boo et al, 2017) or monthly (Elfakhani et al, 2005;Mansor and Bhatti, 2011;Habib and Islam, 2014) frequency of analysis, to compare SCEIs with their conventional counterparts. Kamara et al (2016) show that returns and risks depend on the investment horizon.…”