Revisiting Markowitz's Mean Variance analysis: A review from shariah perspective

Hazny, Mohamad Hafiz; Hashim, Hilwati; Yusof, Aida Yuzi

doi:10.1109/icssbe.2012.6396577

Cited by 6 publications

(10 citation statements)

References 8 publications

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“…Markowitz's MV model is the pioneer of modern portfolio theory in portfolio optimization. This MV model is modified by incorporating two Islamic principles: the obligation to issue zakat, and the concept of purification for Shariah shares (Hazny et al, 2012). Shariah-compliant stock portfolio modeling is done by adding the expected return on assets exceeding the zakat rate and using goal programming to accommodate several goals simultaneously (Masri, 2018).…”

Section: Asset Pricing and Portfolio Modelingmentioning

confidence: 99%

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Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Subekti¹,

Abdurakhman²,

Rosadi³

et al. 2022

5002

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Many articles demonstrate the advantages of applying Shariah principles in economic and financial activities, which motivates model development for Shariah investment. The development of the capital asset pricing model (CAPM) and mean-variance (MV) for Shariah portfolios shows various efforts within a Shariah framework. But the MV model has diversification weaknesses, and the Black–Litterman (BL) model solves this problem. According to Islamic principles, the CAPM’s use in the BL model is problematic due to the risk-free rate. This study aims to introduce a modified BL model adapted to Islamic principles. We propose a modified BL model with a Shariah-compliant asset pricing model (SCAPM) that considers the zakat obligation and purification rate to develop the model with Islamic principles. The proposed model was implemented in the Indonesian stock market. A portfolio’s Sharpe ratio using the BL-SCAPM outperforms BL-CAPM. This finding supports the idea that the modified BL model can be applied as a new alternative for a Sharia portfolio model.

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Section: Asset Pricing and Portfolio Modelingmentioning

confidence: 99%

“…The MUI National Shariah Board issued this rule concerning the categorization of Shariah-compliant stocks. According to Hazny et al (2012), this purification is denoted by δi (Equation 9):…”

Section: Shariah-compliant Asset Pricing Model With Zakat and Purific...mentioning

confidence: 99%

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Subekti¹,

Abdurakhman²,

Rosadi³

et al. 2022

5002

View full text Add to dashboard Cite

show abstract

“…Hazny et al (2020) offered a mathematical concept of shariah compliance in the capital asset pricing model (CAPM). Prior to that, Hazny et al (2012) successfully introduced a model based on Markowitz's mean-variance analysis using the shariah compliance framework. The results indicated that CAPM could measure the relationship between risk and return of Islamic finance.…”

Section: Shariah Compliancementioning

confidence: 99%

Shariah Compliance in Islamic Economics: A Bibliometric Analysis

Sholihin

Ali

Wanto

2021

MJES

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This study aims to examine the literature related to shariah compliance in the Scopus database. Furthermore, classification and critical commentary were applied to find a new direction for developing studies on shariah compliance in Islamic economics. The bibliometric approach was used to analyse 233 articles, while a systematic literature review was used to classify issues from 82 articles on this paradigm. The results showed that the examined studies grew significantly and were influential in developing the shariah compliance paradigm. This was indicated by the author’s highest m-index of 0.666. However, this literature primarily concerns financial institutions and their relationship with the paradigm, followed by related literature in various industries, with extensive discussion on ethics and in the normative context. In this regard, shariah compliance issues can be classified into three topics, namely Islamic banks, non-bank financial institutions, and general firms. Shariah compliance was insufficiently used as an instrument to measure the product restructuring impact of an Islamic bank and a reflection of the compliance from the customer psychology perspective. In this context, it is necessary to transform the paradigm into “preventing exploitation” by introducing the customer exploitation index.

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“…In this context, the role of asset pricing models is to offer an ex-ante means of analyzing investment options available to the investors. Hazny and Yusof (2012) discuss the assumptions of Markowitz’s mean variance analysis and CAPM from the Shari’ah perspective and conclude that some of these assumptions are simplistic for the purpose of facilitating analysis. Rosly (2005) and Hazny and Yusof (2012) argue that the Islamic principle of Al Ghunm bil Ghurm means that returns are justified by taking risks.…”

Section: Choice Of Asset Pricing Models In Security Analysis Of Shari’ah-compliant Stocksmentioning

confidence: 99%

“…Hazny and Yusof (2012) discuss the assumptions of Markowitz’s mean variance analysis and CAPM from the Shari’ah perspective and conclude that some of these assumptions are simplistic for the purpose of facilitating analysis. Rosly (2005) and Hazny and Yusof (2012) argue that the Islamic principle of Al Ghunm bil Ghurm means that returns are justified by taking risks. Furthermore, Al-Kharaj bil Dhaman bases the entitlement to profits on corresponding liability for bearing losses.…”

Section: Choice Of Asset Pricing Models In Security Analysis Of Shari’ah-compliant Stocksmentioning

confidence: 99%

Cross section of stock returns on Shari’ah-compliant stocks: evidence from Pakistan

Shaikh

Ismail

Ismail³

et al. 2019

IMEFM

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Purpose This paper aims to study the cross section of expected returns on Shari’ah-compliant stocks in Pakistan by using single- and multi-factor asset pricing models. Design/methodology/approach To estimate cross section of expected returns of Shari’ah-compliant stocks, the study uses capital asset pricing model (CAPM), Fama-French three-factor model and Fama-French five-factor model. Data for the period 2001-2015 on 217 companies are used. For the market portfolio, PSX-100 and Dow Jones Islamic Index for Pakistan are used. Findings The study could not find empirical support for CAPM using Lintner (1965), Black et al. (1972) and Fama and Macbeth (1973) approach. Nonetheless, the relation between beta and returns is positive in up-market and negative in down-market. The results of Fama-French three-factor and five-factor models suggest that size premium is positive and significant for explaining the cross section of stock returns of small size stocks, whereas value premium is positive and significant for explaining the cross section of returns of high value stocks. Practical implications The results suggest that fund managers can use Shari’ah-compliant stocks for portfolio diversification and for offering specialized investments given the positive market excess returns and the existence of size and value premium on Shari’ah-compliant stocks. Originality/value This is the first study on Fama-French (2015) five-factor model for Islamic capital markets in Pakistan.

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Revisiting Markowitz's Mean Variance analysis: A review from shariah perspective

Cited by 6 publications

References 8 publications

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Integrating Zakat and Purification in a Modified Black–Litterman Model for Shariah-Compliant Stock Portfolios

Shariah Compliance in Islamic Economics: A Bibliometric Analysis

Cross section of stock returns on Shari’ah-compliant stocks: evidence from Pakistan

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