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Article
Publication date: 23 August 2013

Saeed BinMahfouz and M. Kabir Hassan

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to…

Abstract

Purpose

There is a great deal of research that has been done to investigate the investment characteristics of conventional socially responsible investment portfolios compared to their broader conventional counterparts. However, the impact of incorporating sustainability criteria into the traditional Sharia screening process has not so far been investigated. Therefore, the study aims to give empirical evidence as to whether or not incorporating sustainability socially responsible criteria in the traditional Sharia screening process has a significant impact on the investment characteristics of the Islamic investment portfolio.

Design/methodology/approach

The paper examines the investment characteristics of four groups of investment portfolios mainly, Dow Jones Global Index, Dow Jones Sustainability World Index, Dow Jones Islamic Market World Index and Dow Jones Islamic Market Sustainability Index. To improve the robustness of the study, the analysis was carried out at different levels. First, absolute mean return and t‐test were used to examine whether the difference between the different groups of investments is statistically significant or not. Second, risk adjusted equilibrium models, both single‐index and Fama and French multi‐index, were employed. This is to control for different risk exposure and investment style bias associated with different investment portfolios examined.

Findings

The paper finds that neither the Sharia nor the sustainability screening process seems to have an adverse impact on the performance and systematic risk of the investment portfolios compared to their unrestricted conventional counterparts. Therefore, Muslim as well as socially responsible investors can choose investments that are consistent with their value systems and beliefs without being forced to sacrifice performance or expose to higher systematic risk.

Originality/value

The study contributes to the existing literature by giving new evidence on the impact of incorporating sustainability criteria into the traditional Sharia screening process that has not so far been investigated.

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Article
Publication date: 11 November 2014

Mohammad Omar Farooq and Md. Hasib Reza

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…

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.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 4
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 26 August 2020

Fatma Alahouel and Nadia Loukil

This paper aims to investigate the financial uncertainty vary according to different financial assets type: conventional and Islamic.

Abstract

Purpose

This paper aims to investigate the financial uncertainty vary according to different financial assets type: conventional and Islamic.

Design/methodology/approach

Common factors are related to risk or known information. For this, the authors use general dynamic factor model to extract common variation between both types of indexes. Then they calculate stochastic volatility for each idiosyncratic component. They also carry out the study on three different family indexes respectively, Dow Jones, S&P and MSCI indexes, for the period going from January 1, 2008 to June 30, 2018. Through a comparison analysis with uncertainty index designed for conventional assets, the authors examine the similarity between the two indexes via mean, median and variance tests. They decrypt the interrelation between them by using OLS linear regression, vector autoregressive model.

Findings

The findings show that Islamic assets uncertainty is different from conventional uncertainty level. This difference can be due to the Shariah screening and the prohibition of gharar. The main findings suggest that Islamic financial uncertainty is lower than conventional one. The OLS results prove that conventional financial uncertainties have no impact on their Islamic counterparts. In addition, Islamic financial uncertainty appears to have no significant influence on conventional one exception for Dow Jones pair. Overall, the findings support the decoupling hypothesis in term of uncertainty only for SP and MSCI indexes.

Practical implications

Risk averse investors can find their claim in Shariah-compliant assets, as it offers a low level of financial uncertainty. A portfolio manager may benefit from the long run non-association in uncertainty between Islamic and conventional assets especially in time of crisis.

Originality/value

In this work, the authors measured financial uncertainty differently and take into account the specific features of each index type to improve the results quality.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 11 July 2016

Issam Bousalam and Moustapha Hamzaoui

This paper aims to expand the literature on performance and volatility of Islamic funds and indices in comparison to their conventional unscreened counterparts, by…

Abstract

Purpose

This paper aims to expand the literature on performance and volatility of Islamic funds and indices in comparison to their conventional unscreened counterparts, by studying the Moroccan case considering the recent introduction of Islamic finance in the country toward the end of 2015.

Design/methodology/approach

As there are still no Shariah-compliant indices in Morocco, the authors first applied four Shariah screening methodologies of some of the world leading equity index providers (i.e. Dow Jones, FTSE, S&P and MSCI) to screen the public listed companies in Casablanca Stock Exchange for Shariah compliance. Next, the authors constructed four Islamic float-weighted indexes for which they modeled the dynamic volatility using an extension of the AutoRegressive Conditional Heteroskedasticity models, namely, EGARCH(1,1).

Findings

The findings show that the screening process resulted in a well-diversified universe of Shariah-compliant stocks (25.6 per cent) to invest in. Furthermore, it is found that constructed Islamic indices outperformed the broad-based Moroccan All Shares Index (MASI) during the considered period of analysis (January 2013 to December 2014), and their long-run volatility is higher. This indicates that investors in Shariah-compliant stocks do not sacrifice financial performance for their risky investment. The estimates of the model show that volatility for the MASI is more persistent and takes longer time to die, and the leverage effect is positive for all indices, meaning that volatility of indexes’ returns is influenced more by good news than bad news, a result that is in contrast to other studies for developed countries.

Practical implications

On the arrival of the new banking law that introduced Islamic finance for the first time in Morocco, the authors suppose that these results could be very helpful for the Moroccan financial authorities in consideration with the construction of Islamic equity indices for Muslim investors seeking to invest ethically in accordance to their religious convictions but also for index funds managers and other equity market players.

Originality/value

The present study is the first of its kind in Morocco to construct Islamic indices using Shariah screening methodologies for which the volatility is modeled using an EGARCH(1,1) dynamic volatility model.

Details

Journal of Financial Regulation and Compliance, vol. 24 no. 3
Type: Research Article
ISSN: 1358-1988

Keywords

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Article
Publication date: 13 April 2015

Mustafa Dah, Monzurul Hoque and Song Wang

The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of…

Abstract

Purpose

The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of rules that determines Islamic allowed activities including socially and ethically acceptable investments.

Design/methodology/approach

The authors apply four risk-adjusted methodologies and co-integration analysis to investigate whether limited asset universe Shariah investments limit investment opportunities and impose an opportunity cost on investors given the prediction of conventional portfolio theories.

Findings

In contrast to the prediction of conventional portfolio theories, the findings suggest no apparent opportunity cost for Shariah compatible investments. In particular, Dow Jones Islamic Mutual Funds do not under-perform the broader market US benchmarks nor do they have any co-integration with the broader indexes. Moreover, the authors find similar evidence in the studies of Islamic mutual funds in Saudi Arabia, Malaysia and Kuwait.

Research limitations/implications

The findings will be reinforced when the authors will look into long run performance of Shariah compliant funds in future. Using non-linear approach will add further clarity to the findings.

Practical implications

The results provide an insight suggesting that successful mutual fund managers are able to overcome Shariah restrictions and constraints through creative investment strategies. In the data set, the Amana Trust Growth fund and the Amana Trust Income fund were always the best performers with a highly significant abnormal return, no matter what the methodology was.

Social implications

The performance of Islamic funds during the approximately seven-year period covered by the study is very promising. Popularity of Islamic Investment is expected to grow as Muslim population represents about 25 percent of the world population and the possibility for the Muslim funds to be considered as viable alternative by non-Shariah abiding or non-Muslim investors. The empirical results in the paper provide evidence that lack in diversification did not constrain the performance of Islamic funds.

Originality/value

This paper applied comprehensive risk-adjusted methodologies and co-integration analysis to Islamic Funds for a seven-year period for multiple countries. The findings confirm previously obtained results and highlight the fact that constrained Islamic Funds may not under-perform as per conventional portfolio theories.

Details

Managerial Finance, vol. 41 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

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Article
Publication date: 19 December 2019

Monia Antar and Fatma Alahouel

This paper aims to analyse the opportunity of an exclusive investment in the DJ Islamic indexes. The objective is to characterize the links between MENA region index with…

Abstract

Purpose

This paper aims to analyse the opportunity of an exclusive investment in the DJ Islamic indexes. The objective is to characterize the links between MENA region index with seven DJ Islamic indexes.

Design/methodology/approach

A co-movement analysis was conducted to assess whether there is a safe investment during crisis. The VECM verifies the existence of a long run association. The MGARCH-DCC characterizes the dynamic links. The wavelet coherence detects a correlation in a time-frequency domain, which is relevant to set up a diversification strategy based on investment horizons.

Findings

Despite the existence of a long run association between the Islamic indexes, diversification opportunities are present. The MGARCH-DCC results recommend including the USA, Canada and Emerging Markets indexes with the Mena index to get diversification benefits. The Wavelet coherence confirms these results for 0 to 16 days holding period and more than six-months’ investment horizons. Hence, MENA portfolio managers should not invest in Europe, UK and Emerging Markets indexes.

Research limitations/implications

This study focused only on the bivariate correlation analysis without taking into consideration multivariate relationships. Future research should use multiple wavelet coherence and explore S&P Shariah indexes.

Practical implications

This work is important for investors searching for assets governed by sharia rules, who reject resorting to conventional markets, and policy makers dealing with coordination costs. They would be able to formulate strategies based on the different indexes’ relationships.

Originality/value

This paper enriches the limited stream of literature focusing only on Islamic indexes. Due to the important development of Islamic Finance in each MENA country, the authors shed the light on this Region’s index.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

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Article
Publication date: 12 February 2019

Arfaoui Mongi

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent…

Abstract

Purpose

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.

Design/methodology/approach

It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.

Findings

The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.

Research limitations/implications

The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.

Practical implications

The findings offer some highlights to researchers, portfolio managers and policymakers.

Originality/value

The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

Details

International Journal of Emerging Markets, vol. 14 no. 4
Type: Research Article
ISSN: 1746-8809

Keywords

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Article
Publication date: 31 August 2010

Azhar Abdul Rahman, Mohd Azlan Yahya and Mohd Herry Mohd Nasir

The purpose of this paper is to compare the criteria used among Islamic Indices, specifically between the Kuala Lumpur Stock Exchange Shari'ah Index (KLSESI) and the Dow

Abstract

Purpose

The purpose of this paper is to compare the criteria used among Islamic Indices, specifically between the Kuala Lumpur Stock Exchange Shari'ah Index (KLSESI) and the Dow Jones Islamic Market Index (DJIM) in screening a permissible company for investment purposes. The two controversial criteria examined are: level of debt and level of liquidity of company.

Design/methodology/approach

The paper investigates the 642 companies listed on the Bursa Malaysia in 2006 as approved Shariah's compliant companies by the Shari'ah Advisory Council of the KLSE.

Findings

Overall, the results reveal that the KLSESI does not use both the criteria set by the DJIM as its measures during the screening process. As for the level of debt criterion, the results show that 44.07 percent of the companies listed under the KLSESI are highly geared. These companies depend heavily on debt to finance their capital. However, the results for the level of liquidity criterion are not as extreme as the level of debt where it shows only 17 percent of the companies listed under the KLSESI are highly liquid. The results also indicate that if both criteria are compared concurrently, only 198 out of 565 companies listed under the KLSESI conform to the criteria set up by the DJIM.

Research limitations/implications

The main reasons why the differences exist among Islamic Indices are due to micro‐factor as faced by Malaysian companies such as the limited amount of capital resources. The Shari'ah supervisory board of the respective indices represents the sole body that determines the rules or criteria to be used by each index. This explains why the indices differ from one country to another and efforts should be done by regulators in the respective countries to harmonize the differing criteria used.

Originality/value

The paper represents the first study that compares the criteria used by two different indices regarding Islamic capital investment in a developing country.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Content available
Article
Publication date: 8 June 2021

Shafiu Ibrahim Abdullahi

The purpose of the study is to measure cross-country stock market correlation and volatility transmission during the global coronavirus disease 2019 (COVID-19) pandemic…

Abstract

Purpose

The purpose of the study is to measure cross-country stock market correlation and volatility transmission during the global coronavirus disease 2019 (COVID-19) pandemic. The paper traces trajectory of Islamic equity investments in order to get insights on the behavior of the markets during the crisis.

Design/methodology/approach

The paper uses generalized method of moments (GMM), autoregressive distributed lag (ARDL) and multivariate GARCH (MGARCH) models for analysis of dynamic causality, stock market cointegration, correlation and volatility transmission between Islamic stock indices.

Findings

The result of normal correlation analysis on the share indices show the markets move together. The result of ARDL cointegration test shows the markets returns are cointegrated as a group. To further make sense of the data; the indices were grouped into four different categories, then cointegration tests were conducted. The results of the analysis show that the subgroups are cointegrated except the low COVID-19 subgroup. Based on MGARCH findings, the possibility of volatility transmission between markets during the crisis is high. The market returns indices show the usual herd mentality common during the period of crisis.

Originality/value

Unlike other works in this area, this paper attempt to trace the trajectory of Islamic equity investment in order to get relevant insights and arrives at appropriate ways of responding to the crisis.

Details

Islamic Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1319-1616

Keywords

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Article
Publication date: 11 January 2021

Naseem Al Rahahleh, Serkan Akguc and Turki Abalala

The purpose of this paper is to examine the operating performance of Dow Jones Islamic Index (DJII) firms vs non-DJII firms. It also explores the impact of the 2007–2008…

Abstract

Purpose

The purpose of this paper is to examine the operating performance of Dow Jones Islamic Index (DJII) firms vs non-DJII firms. It also explores the impact of the 2007–2008 financial crisis on the operating performance of firms included under DJII relative to a comparable set of firms (i.e. industry-size matched) that are not included in the DJII.

Design/methodology/approach

The final sample consisted of 1,128 unique firms (or 5,669 observations) in the DJII sample and 9,501 unique firms (or 55,889 observations) in the non-DJII sample. The paper uses a unique dataset from S&P’s Compustat North America database during the period of 2005–2014. This study uses univariate tests complemented with multivariate regression analysis to gain further insight into the influence of Shariah compliance on the operating performance of firms during the crisis.

Findings

The paper shows that DJII firms were more profitable than non-DJII firms during the sample period. In addition, DJJI firms’ profitability was not affected as much during the financial crisis as non-DJII firms. This finding is robust to various model specifications and to alternative definitions of operating profitability.

Research limitations/implications

Corporate governance and managerial characteristics and the possible effects of these on operational performance are not considered herein.

Practical implications

Investors and fund managers could benefit from investing in Islamicly permissible equity funds when constructing investment portfolios in regard to asset allocation and policy responses to financial crises.

Originality/value

The present paper uses a unique sample and timeframe to show that the characteristics that makes a firm Shariah-compliant also leads to much higher operating profitability and reduces the impact of the financial crisis on firm profitability.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 14 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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