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Dow Jones Islamic Market US Index: Applying technical analysis from a comparative perspective

Mohammad Omar Farooq (Department of Islamic Finance, 21st Century Consulting, Juffair, Bahrain)
Md. Hasib Reza (Independent Analyst, Dhaka, Bangladesh)

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 11 November 2014

Abstract

Purpose

The purpose of this paper is to apply technical analysis to some leading Islamic indices and explore if these indices are amenable to the same kind of analysis as applied to conventional indices and whether technical analysis, in contrast with fundamental analysis, produces distinct or superior return.

Design/methodology/approach

In this paper, some basic tools of TA to Dow Jones Islamic Market US Index (IMUS) is applied in comparison with the three major market indices: Dow Jones Industrial Average, S&P 500 Index and NASDAQ 100. For TA, we apply moving averages, MACD and Stochastics as indicators. The paper is written particularly for those with interest in Islamic finance, but not necessarily familiar with TA. This paper thus also explores some Shariah-related issues in effectively applying TA.

Findings

The comparative analysis shows that the performance based on IMUS can be improved, when TA is applied.

Research limitations/implications

Robust tools of TA play an important role in market research. This paper probably is the first to apply TA in the context of Islamic finance. Because the scope of this paper is limited (only Dow Jones Islamic USA Index and comparison with three leading market indices), more in-depth research is needed and possible, which it is hoped this paper will encourage.

Practical implications

The successful application of the basic TA tools to Islamic index will encourage the practitioners of Islamic finance to research and explore further uses and effectiveness of TA on other Islamic products.

Originality/value

This paper is probably the first application of TA to Islamic finance markets, written especially for those who take active interest in the financial market from Islamic perspective.

Keywords

Acknowledgements

The authors of this paper gratefully acknowledge the valuable feedback from two anonymous reviewers and from Namasiku Liandu (21st Century Consulting) and Dr Jyoti Venkatesh (Bahrain Institute of Banking and Finance).

Citation

Omar Farooq, M. and Hasib Reza, M. (2014), "Dow Jones Islamic Market US Index: Applying technical analysis from a comparative perspective", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 7 No. 4, pp. 395-420. https://doi.org/10.1108/IMEFM-12-2013-0134

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited