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Islamic investing

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  • Christian Walkshäusl
  • Sebastian Lobe

Abstract

Using a large international sample of 35 developed and emerging markets, we analyze whether Islamic indices exhibit a different performance to conventional benchmarks. While there is no compelling evidence of performance differences in robust Sharpe ratio tests and after controlling for market risk, we find a significantly positive four‐factor alpha for the aggregate developed markets region. This outperformance stems, however, mainly from the U.S. and is largely attributable to the exclusion of financial stocks in Sharia‐screened portfolios. As the extensive downturn of financials is related to the recent financial crisis, we do not argue that this outperformance will continue over time. The style analysis reveals that Islamic indices invest mainly in growth stocks and positive momentum stocks. This, for a passive portfolio intriguing result can, however, be explained by the strong sector allocation towards energy firms and their strong momentum characteristic during the sample period.

Suggested Citation

  • Christian Walkshäusl & Sebastian Lobe, 2012. "Islamic investing," Review of Financial Economics, John Wiley & Sons, vol. 21(2), pages 53-62, April.
    • Handle: RePEc:wly:revfec:v:21:y:2012:i:2:p:53-62
    DOI: 10.1016/j.rfe.2012.03.002
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    Cited by:

    1. Jaballah, Jamil & Peillex, Jonathan & Weill, Laurent, 2018. "Is Being Sharia compliant worth it?," Economic Modelling, Elsevier, vol. 72(C), pages 353-362.
    2. Mohammad, Nazeeruddin & Ashraf, Dawood, 2015. "The market timing ability and return performance of Islamic equities: An empirical study," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 169-183.
    3. Muhammad Anas & Ghulam Mujtaba & Sadaf Nayyar & Saira Ashfaq, 2020. "Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets," JRFM, MDPI, vol. 13(7), pages 1-27, July.
    4. Ashraf, Dawood & Felixson, Karl & Khawaja, Mohsin & Hussain, Syed Mujahid, 2017. "Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 171-182.
    5. John A. Sandwick & Pablo Collazzo, 2021. "Modern portfolio theory with sharia: a comparative analysis," Journal of Asset Management, Palgrave Macmillan, vol. 22(1), pages 30-42, February.

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