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Is Being Sharia compliant worth it?

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  • Jaballah, Jamil
  • Peillex, Jonathan
  • Weill, Laurent

Abstract

We investigate the effect of Sharia compliance on stock valuations. To this end, we examine the price effects of additions to and deletions from the Dow Jones Islamic Market Index (DJIMI). Using the event study methodology, we measure abnormal returns for companies from Muslim countries and the US over the period of 2000–2017. We find that additions to the Islamic index lead to a positive stock market reaction in Muslim countries but a negative reaction in the US. Conversely, deletions from the Islamic index generate a negative stock market reaction in Muslim countries but a positive one in the US. The differing valuation effects can be explained by different perceptions of investors. In Muslim countries, investors have a positive perception of the Sharia compliance because of religious beliefs, while in the US they negatively react because of a negative perception of Islam and of the restrictions associated with Sharia compliance.

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  • Jaballah, Jamil & Peillex, Jonathan & Weill, Laurent, 2018. "Is Being Sharia compliant worth it?," Economic Modelling, Elsevier, vol. 72(C), pages 353-362.
    • Handle: RePEc:eee:ecmode:v:72:y:2018:i:c:p:353-362
    DOI: 10.1016/j.econmod.2018.02.011
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    Cited by:

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    2. El Ouadghiri, Imane & Peillex, Jonathan, 2018. "Public attention to “Islamic terrorism” and stock market returns," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 936-946.
    3. Jonathan Peillex & Sabri Boubaker & Breeda Comyns, 2021. "Does It Pay to Invest in Japanese Women? Evidence from the MSCI Japan Empowering Women Index," Journal of Business Ethics, Springer, vol. 170(3), pages 595-613, May.
    4. Umi Widyastuti & Erie Febrian & Sutisna Sutisna & Tettet Fitrijanti, 2020. "Sharia Compliance in Sharia Mutual Funds: A Qualitative Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 19-27.
    5. Vincent Lavaine, 2020. "Intérêts et Limites de la labélisation du marché français de l'ISR," Working Papers hal-02494009, HAL.
    6. Peillex, Jonathan, 2022. "Comment expliquer la décision de création d’un fond éthique ? [What explain the creation of ethical funds?]," MPRA Paper 115067, University Library of Munich, Germany.
    7. Hassan, Kamrul & Hoque, Ariful & Gasbarro, Dominic & Wong, Wing-Keung, 2023. "Are Islamic stocks immune from financial crises? Evidence from contagion tests," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 919-948.
    8. Peillex, Jonathan, 2023. "Réaction des investisseurs à la création de fonds éthiques [Investor reaction to the creation of ethical funds]," MPRA Paper 118930, University Library of Munich, Germany.
    9. Alexandra Huang, 2019. "Déterminants des encours nationaux socialement responsables : Une analyse exploratoire internationale," Working Papers hal-02242796, HAL.
    10. Peillex, Jonathan & Erragragui, Elias & Bitar, Mohammad & Benlemlih, Mohammed, 2019. "The contribution of market movements, asset allocation and active management to Islamic equity funds’ performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 32-38.
    11. Ooi, Chai-Aun & Hooy, Chee-Wooi, 2022. "Muslim CEOs, risk-taking and firm performance," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    12. Erragragui, Elias & Peillex, Jonathan & Benlemlih, Mohammed & Bitar, Mohammad, 2023. "Stock market reactions to corporate misconduct: The moderating role of legal origin," Economic Modelling, Elsevier, vol. 121(C).
    13. Peillex, Jonathan & El Ouadghiri, Imane & Gomes, Mathieu & Jaballah, Jamil, 2021. "Extreme heat and stock market activity," Ecological Economics, Elsevier, vol. 179(C).
    14. Budi Wahyono, 2023. "Do political connections affect the market reaction to firms’ inclusion in or exclusion from the Sharia index?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(4), pages 835-854, December.
    15. Delâtre, Chloë, 2022. "Désinvestissement des combustibles fossiles: quelles conséquences pour la gestion de portefeuille ? [Fossil fuel divestment and portfolios implications]," MPRA Paper 114633, University Library of Munich, Germany.

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    More about this item

    Keywords

    Religion; Islamic finance; Event studies;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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