Socially responsible investment and Shariah-compliant investment compared: Can investors benefit from diversification? An ARDL approach
Islamic ﬁnance and Socially Responsible Investment (SRI) have been two of the most rapidly growing areas of ﬁnance over the last two decades. During this period, they have each grown at rates that far exceed that of the ﬁnancial markets as a whole. The purpose of this paper is to take a comparative approach in comparing and contrasting the performance of both types of restricted investment portfolios by using ARDL bounds testing approach. The paper provides an innovative view to two different markets and suggests that there are commonalities which need to be exploited for the beneﬁt of both markets. The study assesses the extent of correlation between social responsible investment funds and Sharia compliant investment funds in different economic situations to determine if the nature of relationship between funds changes in between the non-crisis period and the 2007 crisis period for four markets such as Dow Jones Islamic World, Dow Jones Islamic Europe; Dow Jones Sustainability World and Dow Jones Sustainability Europe. By estimating the short and long term dynamics between the socially responsible investment indexes and Islamic indexes, and the extent of cointegration between these two funds, the findings tend to indicate that the SRI and Islamic funds have significantly different behavior in both the short run and long run. Despite the differences in the screening criteria and portfolio management of both types of funds, this study suggests that the potential diversification benefits between Sharia compliant funds and the SRI funds are possible both in the crisis period and non-crisis period.
|Date of creation:||22 Jun 2015|
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- Hussein, Khaled A., 2004. "Ethical Investment: Empirical Evidence From Ftse Islamic Index," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 12, pages 22-40.
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- Alan Gregory & Julie Whittaker, 2007. "Performance and Performance Persistence of 'Ethical' Unit Trusts in the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(7-8), pages 1327-1344.
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