The diversification benefit of Islamic investment to Chinese conventional equity investors: Evidence from the multivariate GARCH analysis
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 6 December 2019
Issue publication date: 17 February 2020
Abstract
Purpose
The purpose of this paper is to investigate the extent to which Chinese equity investors can benefit from diversifying their portfolio into Shariah-compliant (Islamic) indices. It examines three Islamic stock indices (FTSE Shariah China price index, MSCI China Islamic IMI price index and the DJ Islamic Greater China price index) and ten sectoral indices in Shanghai Stock Exchange as a sample.
Design/methodology/approach
The multivariate GARCH dynamic conditional correlations (MGARCH-DCC) is deployed to estimate the time-varying linkages of returns of the selected indices, covering approximately eight years daily data starting from 28 August 2009 to 29 September 2017.
Findings
In general, in terms of volatility, the results indicate that all Islamic Indices are less volatile than the conventional indices. From the correlation analysis, the results imply that Chinese conventional equity investors would benefit from Islamic stock indices, especially when they include DJ Islamic Greater China in their portfolio.
Originality/value
The findings of this paper may have several significant implications for the Chinese equity investors and fund managers for better understanding about co-movements of the Chinese conventional sectoral indices with the Shariah-compliant stock indices with the purpose of gaining higher risk-adjusted returns through portfolio diversification.
Keywords
Acknowledgements
The authors are deeply grateful to Prof. Dr Kabir Hassan (the editor) and the anonymous reviewers for their helpful comments which have improved the quality of the paper greatly. The authors acknowledge and assume responsibility for any other mistakes or errors within the manuscript.
Citation
Saiti, B., Ma, Y., Nagayev, R. and Yumusak, İ.G. (2020), "The diversification benefit of Islamic investment to Chinese conventional equity investors: Evidence from the multivariate GARCH analysis", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 13 No. 1, pp. 1-23. https://doi.org/10.1108/IMEFM-01-2018-0014
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited