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Are There Profit (Returns) in Shariah-Compliant Exchange Traded Funds? The Multiscale Propensity

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  • Farouk, Faizal
  • Masih, Mansur

Abstract

This paper investigates the co-movement of nine Islamic Exchange Traded Fund (ETF) returns using wavelet coherence methods. The results tend to indicate consistent co-movement between most of the ETF returns especially in the long run. The study also uncovers evidence of wide variation of co-movement across the time-scales during the global financial crisis and the Euro debt crisis. Strong co-movement can be observed during the global financial crisis, both for the medium term investors and long term investors. The paper also studies the relationship between different ETF returns using wavelet multi-resolution analysis. The cross-correlation analysis also shows certain significant and positive correlations between the ETF returns, especially during the period of global financial crisis. The findings from these two recent dynamic time-scale decomposition methodologies have important policy implications for risk management and investors’ investment policy.

Suggested Citation

  • Farouk, Faizal & Masih, Mansur, 2014. "Are There Profit (Returns) in Shariah-Compliant Exchange Traded Funds? The Multiscale Propensity," MPRA Paper 58869, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:58869
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    References listed on IDEAS

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    More about this item

    Keywords

    Islamic exchange traded fund returns; Wavelet coherence; MODWT;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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