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Diversification benefits of Shari'ah compliant equity ETFs in emerging markets

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  • Gad, Samar
  • Andrikopoulos, Panagiotis

Abstract

Previous studies on the performance of Islamic finance and banking have been more comparative than experimental when it comes to the role and effect of Islamic (Shari'ah compliant) assets in a conventional setting. This paper investigates whether Shari'ah compliant exchange-traded funds (ETFs) have potential diversification benefits to a volatile portfolio of conventional investments in emerging markets. The results suggest that such assets not only improve the risk-adjusted returns of portfolios but also receive proportionally higher weight during crisis periods. Hence, institutional investors should consider the ‘religion effect’ when they manage their assets, given the evidence regarding the outperformance of Shari'ah compliant equity relative to their conventional peers.

Suggested Citation

  • Gad, Samar & Andrikopoulos, Panagiotis, 2019. "Diversification benefits of Shari'ah compliant equity ETFs in emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 133-144.
  • Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:133-144
    DOI: 10.1016/j.pacfin.2018.10.009
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    More about this item

    Keywords

    Emerging markets; Islamic assets; Dynamic optimisation; ETFs;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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