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Predictability of Shariah-Compliant Stock and Real Estate Investments


  • Sing Tien Foo

    () (Department of Real Estate, National University of Singapore)

  • Loh Kok Weng

    () (Department of Real Estate, National University of Singapore)


The study tests the predictability of excess returns on four global asset classes that include Shariah-compliant (SC) real estate, SC stocks, conventional real estate and real estate investment trusts (REITs). Based on weekly excess returns from January 2001 to December 2010, our empirical results do not reject the hypothesis that Shariah compliance risk is significantly priced in the excess returns of a portfolio of the four global asset classes. Shariah compliance risk and real estate risk are mutually exclusive. Fund managers will only price one common Shariah compliance risk in a pure real estate portfolio that consists of SC real estate, conventional real estate and REITs.

Suggested Citation

  • Sing Tien Foo & Loh Kok Weng, 2014. "Predictability of Shariah-Compliant Stock and Real Estate Investments," International Real Estate Review, Asian Real Estate Society, vol. 17(1), pages 23-46.
  • Handle: RePEc:ire:issued:v:17:n:01:2014:p:23-46

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    References listed on IDEAS

    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
    3. Abdelaziz Chazi & Lateef A.M. Syed, 2010. "Risk exposure during the global financial crisis: the case of Islamic banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 3(4), pages 321-333, November.
    4. Derigs, Ulrich & Marzban, Shehab, 2009. "New strategies and a new paradigm for Shariah-compliant portfolio optimization," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1166-1176, June.
    5. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June.
    6. Ferson, Wayne E, 1990. " Are the Latent Variables in Time-Varying Expected Returns Compensation for Consumption Risk?," Journal of Finance, American Finance Association, vol. 45(2), pages 397-429, June.
    7. Seng Kok & Gianluigi Giorgioni & Jason Laws, 2009. "Performance of Shariah-Compliant Indices in London and NY Stock Markets and their potential for diversification," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 398-408.
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    More about this item


    Shariah-Compliance (SC) risk; Common risk premia; Global asset portfolios; Predictability of excess returns; Risk diversification;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services


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