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Adaptive Markets Hypothesis for Islamic Stock Portfolios: Evidence from Dow Jones Size and Sector-Indices

Author

Listed:
  • Amélie Charles

    (Audencia Business School)

  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Jae H Kim

    (La Trobe University [Melbourne])

Abstract

This paper analyzes the degree of return predictability (or weak-form informational efficiency) of Dow Jones Islamic and conventional size and sectorindices using the data from 1996 to 2013. Employing the automatic portmanteau and variance ratio tests for the martingale difference hypothesis of asset returns, we find that all Islamic and conventional portfolio returns have been predictable in a number of periods, consistent with the implications of the adaptive markets hypothesis. Overall, Islamic portfolios exhibit a higher degree of informational efficiency than the conventional ones, especially in the Consumer Goods, Consumer Services, Financials and Technology sectors. We also find that Islamic portfolios tend to be more efficient than the conventional ones during crisis periods

Suggested Citation

  • Amélie Charles & Olivier Darné & Jae H Kim, 2017. "Adaptive Markets Hypothesis for Islamic Stock Portfolios: Evidence from Dow Jones Size and Sector-Indices," Post-Print hal-01526483, HAL.
    • Handle: RePEc:hal:journl:hal-01526483
    DOI: 10.2139/ssrn.2611472
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-01526483
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    2. Ozkan, Oktay, 2021. "Impact of COVID-19 on stock market efficiency: Evidence from developed countries," Research in International Business and Finance, Elsevier, vol. 58(C).
    3. Oktay Ozkan, 2020. "Time-varying return predictability and adaptive markets hypothesis: Evidence on MIST countries from a novel wild bootstrap likelihood ratio approach," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 34(2), pages 101-113.
    4. Ashok Chanabasangouda Patil & Shailesh Rastogi, 2019. "Time-Varying Price–Volume Relationship and Adaptive Market Efficiency: A Survey of the Empirical Literature," JRFM, MDPI, vol. 12(2), pages 1-18, June.
    5. Hill, Jonathan B. & Motegi, Kaiji, 2019. "Testing the white noise hypothesis of stock returns," Economic Modelling, Elsevier, vol. 76(C), pages 231-242.
    6. Karim, Muhammad Mahmudul & Kawsar, Najmul Haque & Ariff, Mohamed & Masih, Mansur, 2022. "Does implied volatility (or fear index) affect Islamic stock returns and conventional stock returns differently? Wavelet-based granger-causality, asymmetric quantile regression and NARDL approaches," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    7. Sherif, Mohamed, 2020. "The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    8. Muhammad Shehryar & Furrukh Bashir & Kashif Raza & Rashid Ahmad, 2022. "Random Walk Hypothesis: An Empirical Comparison of Shari’ah and Non-Shari’ah Capital Markets of Pakistan and China," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(3), pages 439-447, September.
    9. Al-Yahyaee, Khamis Hamed & Mensi, Walid & Rehman, Mobeen Ur & Vo, Xuan Vinh & Kang, Sang Hoon, 2020. "Do Islamic stocks outperform conventional stock sectors during normal and crisis periods? Extreme co-movements and portfolio management analysis," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).

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