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Article
Publication date: 23 May 2018

Muhammad Rizky Prima Sakti, Mansur Masih, Buerhan Saiti and Mohammad Ali Tareq

The purpose of this paper is to examine the extent to which the Indonesian Shariah compliant investors can benefit from the portfolio diversification with the Islamic indices of…

Abstract

Purpose

The purpose of this paper is to examine the extent to which the Indonesian Shariah compliant investors can benefit from the portfolio diversification with the Islamic indices of its trading partners and selected commodities such as gold, crude oil, and cocoa.

Design/methodology/approach

The authors use daily time series data covering both Islamic and commodity indices starting from June 4, 2007 until December 30, 2016 by the application of multivariate-generalized autoregressive conditional heteroscedastic and continuous wavelet analysis.

Findings

The findings tend to indicate that investors with exposure in Shariah compliant indices of Indonesia and wanting to gain more diversification benefits should invest either in the USA or India Islamic equity. Instead, the greater benefits will be obtained by Shariah compliant investors if they invest in the USA Islamic indices during long-term investment horizons. If investors want to invest in medium investment horizons, investing in India Islamic equity is a viable option. The findings further suggest that gold has a role of diversification benefits as a “safe haven” instrument for investors. It is advisable for the investors that have exposure in commodities (gold, crude oil, and cocoa) and want to invest in Indonesian Islamic equity, they should hold the portfolio for not more than 16 days to gain diversification benefits.

Originality/value

The results of this study are expected to have crucial implications for the Indonesia Shariah compliant investors and portfolio managers because it will help them to understand portfolio diversification benefits with different stock holding periods or investment horizons.

Details

Managerial Finance, vol. 44 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 25 April 2022

Waqar Haider Hashmi, Nazima Ellahi, Saima Ehsan and Ajmal Waheed

The purpose of this study is to highlight key issues pertaining to making use of Islamic equity indices and proposing possible solutions to address the problems faced in…

Abstract

Purpose

The purpose of this study is to highlight key issues pertaining to making use of Islamic equity indices and proposing possible solutions to address the problems faced in advancement of the concept of Shariah investing (SI) with the aim to advance the discourse on the subject.

Design/methodology/approach

Online focus group discussion (FGD) was carried out in which ten Islamic finance researchers and analysts belonging to institutions considered as authority on the subject matter participated to share their viewpoints on Islamic equity indices. Content analysis on the collected data of FGD was carried out which has revealed six key themes.

Findings

Six broader themes were identified based on the analysis of FGD, which includes criteria for constructing Islamic equity indices, utilization of Islamic equity indices for comparison with conventional stock indices, stock market efficiency perspectives, reason for integration of different equity markets, investors’ awareness of SI and future directions of Islamic equity indices. Results of the study indicate that Islamic finance researchers and analysts opined that there is a need for revising the criteria for construction of Islamic equity indices. There are conflicting viewpoints regarding performance and efficiency of Islamic indices in comparison with conventional indices and main reasons for stock market integration are trade liberalization, globalization and other factors. Moreover, there is a need for making investors and other market players aware about the attractiveness of Islamic indices from investing point of view.

Originality/value

Based on this extensive literature review and as highlighted by Masih et al. (2018) in their recap of literature on Islamic equity indices indicating that there are bulk of empirical studies carried in the past in the domain, however, there is a dearth of theoretical and qualitative studies. Hence, this preliminary qualitative study not only makes theoretical contribution but also deploys FGD, which is rarely used in the similar context, and offers candid views of the participants on key issues pertaining to Islamic equity indices. This lends novelty to this study.

Details

Journal of Islamic Accounting and Business Research, vol. 13 no. 6
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 6 December 2019

Buerhan Saiti, Yusuf Ma, Ruslan Nagayev and İbrahim Güran Yumusak

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…

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.

Details

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

Keywords

Article
Publication date: 13 May 2022

Nagihan Kılıç, Burhan Uluyol and Kabir Hassan

The aim of this study is to measure portfolio diversification benefits of the Turkey-based equity investors into top trading partner countries. Portfolio diversification benefits…

Abstract

Purpose

The aim of this study is to measure portfolio diversification benefits of the Turkey-based equity investors into top trading partner countries. Portfolio diversification benefits are analyzed from the viewpoint of two types of investors in Turkey: conventional equities investors and Islamic equity investors.

Design/methodology/approach

In order to evaluate the time-varying correlations of the trading partner country's stock index returns with the Turkish stock index returns, the multivariate-generalized autoregressive conditional heteroskedasticity–dynamic conditional correlation (GARCH-DCC) is applied based on daily data covering 13 years' period between January 22, 2008 and January 22, 2021.

Findings

The results revealed that the US stock indices provide the most diversified benefit for both conventional and Islamic Turkey-based equity investors. In general, Islamic indices exhibit relatively lower correlation with trading partners than conventional indices. Turkey and Russia are recorded as the most volatile indices.

Originality/value

The diversification potential in trading partners for Turkey-based Islamic equity investors has not been studied yet. This study is to fill in this gap in the literature and to give fruitful insights to both conventional and Islamic investors.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

Article
Publication date: 18 December 2020

Mongi Arfaoui and Aymen Ben Rejeb

This paper aims to investigate the behavior of volatility of Islamic equity indices toward fundamental risk factors. It focuses on the degree and structure of sensitivity to…

Abstract

Purpose

This paper aims to investigate the behavior of volatility of Islamic equity indices toward fundamental risk factors. It focuses on the degree and structure of sensitivity to commodity price changes, global risk perception and term premium and whether crises and fragility periods have shaped the degree and structure of this sensitivity.

Design/methodology/approach

Quantile regression incorporating structural changes and GARCH-class model are used to establish how sensitivities are varying across volatility distribution depending on global events. The data are daily series of return indices, over the period spanning from January 1, 2001 until January 22, 2018.

Findings

The results show significant sensitivity to fundamental factors. The sensitivity is identified for different regional indices and intensified across quantiles. Speculation has shaped the structure of sensitivity at normal time, but correction holds at time of crisis. The results reveal that even if they share common features, commodities cannot be considered as homogeneous asset class. Indeed, the exact relationship cannot be observed at normal time in presence of speculation and information delay. However, at time of financial fragility and periods of crisis, the sensitivity is assigned with the plausible sign.

Practical implications

The obtained results present several policy implications as well for academics, portfolio managers and policy-makers. It opens new research paths for academic research, it helps in investment decisions, provides lessons for portfolio diversification, both for price discovery and hedging. The results serve as well to implement effective macroeconomic stabilization policies and even fiscal policies to counteract any inflationary impact of fundamental price changes on investors and Islamic banks.

Originality/value

This paper contributes to empirical literature by dealing with the sensitivity of Islamic equity indices to commodity prices and term premium along with the effect of investor sentiment. It pays attention to the financial stability of Islamic stock markets by investigating the sensitivity at normal time, during fragility periods and periods of crisis. It considers the financialization process of commodity markets and includes the term premium to control for rational expectations on term structure of interest rates and the VIX (Volatility index) as global risk perception to control for safety and risk aversion.

Details

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

Keywords

Article
Publication date: 15 January 2018

Buerhan Saiti and Nazrul Hazizi Noordin

The purpose of this paper is to quantify the extent to which the Malaysia-based equity investors can benefit from diversifying their portfolio into the conventional and Islamic

Abstract

Purpose

The purpose of this paper is to quantify the extent to which the Malaysia-based equity investors can benefit from diversifying their portfolio into the conventional and Islamic Southeast Asian region and the world’s top ten largest equity indices (China, Japan, Hong Kong, India, the UK, the USA, Canada, France, Germany and Switzerland).

Design/methodology/approach

The multivariate GARCH-dynamic conditional correlation is deployed to estimate the time-varying linkages of the selected conventional and Islamic Asian and international stock index returns with the Malaysian stock index returns, covering approximately eight years daily starting from 29 June 2007 to 30 June 2016.

Findings

In general, in terms of volatility, the results indicate that both Asian and international Islamic stock indices are more or less volatile than its conventional counterparts. From the correlation analysis, we can see that both the conventional and Islamic MSCI indices of Japan provide more diversification benefits compared to Southeast Asian region, China, Hong Kong and India. Meanwhile, in terms of international portfolio diversification, the results tend to suggest that both the conventional and Islamic MSCI indices of the USA provide more diversification benefits compared to the UK, Canada, France, Germany and Switzerland.

Originality/value

The findings of this paper may have several significant implications for the Malaysia-based equity investors and fund managers who seek for the understanding of return correlations between the Malaysian stock index and the world’s largest stock market indices in order to gain higher risk-adjusted returns through portfolio diversification. With regard to policy implications, the findings on market shocks and the extent of the interdependence of the Malaysian market with cross-border markets may provide some useful insights in formulating effective macroeconomic stabilization policies in the efforts of preventing contagion effect from deteriorating the domestic economy.

Details

International Journal of Emerging Markets, vol. 13 no. 1
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 6 May 2020

Zaghum Umar, Dimitrios Kenourgios, Muhammad Naeem, Khadija Abdulrahman and Salma Al Hazaa

This study analyzes the inflation hedging of Islamic and conventional equities by employing 26 indices for the period ranging from January 1996 till August 2018. The authors…

Abstract

Purpose

This study analyzes the inflation hedging of Islamic and conventional equities by employing 26 indices for the period ranging from January 1996 till August 2018. The authors investigate the decoupling hypothesis for Islamic versus conventional equities across various investment horizons.

Design/methodology/approach

The authors employ a vector autoregressive framework coupled with bootstrapping procedure to compute inflation hedging measures. The hedging measures employed account for the inflation hedging capacity in terms of hedging effectiveness as well as the cost of hedging (efficiency). The authors account for various investment horizons ranging from one month to ten years.

Findings

Although, the authors do not find consistent evidence for the decoupling hypothesis of Islamic and conventional equities in terms of their inflation hedging capacity. However, the authors document that certain Islamic equity indices can be employed to effectively hedge against the risk of inflation.

Originality/value

The main contribution of this study is that the existing literature on the comparative performance of Islamic versus conventional equities against inflation risk is sparse. The purpose of this study is to analyze the inflation hedging attributes of Islamic versus conventional equities, that is, whether Islamic equities render better real returns than their conventional counterparts. It will contribute to the growing literature on the comparison between Islamic and conventional equities by documenting the real return attributes of these two, apparently different, assets. A further contribution is that in order to account for the different investment horizons for different types of investors, this study will quantify the real return attributes of Islamic and conventional equities for short-, medium- and long-term investors.

Details

Journal of Economic Studies, vol. 47 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

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 global…

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

Article
Publication date: 16 September 2020

Nadia Anjum and Suresh Kumar Oad Rajput

This paper aims to investigate whether Islamic and conventional equity indices offer some alpha. These indices are expected to offer no alpha being value-weighted, passive and…

Abstract

Purpose

This paper aims to investigate whether Islamic and conventional equity indices offer some alpha. These indices are expected to offer no alpha being value-weighted, passive and unmanaged.

Design/methodology/approach

This paper used monthly data from 1996 to 2016 of four Dow Jones (DJ) and one financial times stock exchange (FTSE) Islamic equity indices and five conventional Morgan Stanley Capital International (MSCI) equity indices. This study used a simple ordinary least square (OLS) rolling window regressions to generate the alphas and risk loadings when adjusting for prominent pricing factor models.

Findings

The findings from OLS regressions suggest that DJ Islamic indices of Japan, Europe and World generate significant alphas, whereas, MSCI conventional indices of Asia/Pacific, USA and World generate significant alpha when risk-adjusted for pricing factor models. However, in 36-month rolling window regressions, all Islamic indices generate significant alpha and factor loading. The magnitude of alpha and factor loading changes over time.

Research limitations/implications

The finding shows that the Shari’ah-compliant investment fund’s alpha must be adjusted with the respective benchmark index alpha to measure the fund manager’s skill performance quantitatively.

Originality/value

To the best of the author’s knowledge, this is the first study that investigates and compares the Islamic, as well as conventional indices for abnormal returns, which are adjusted for both Fama–French five and q-theory-based four assets pricing risk factors and as a benchmark for Shari’ah-compliant fund’s performance.

Details

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

Keywords

Article
Publication date: 14 October 2022

Mohsin Ali, Mudeer Ahmed Khattak, Shabeer Khan and Noureen Khan

The purpose of this study is to examine the impact of the COVID-19 pandemic on Association of Southeast Asian Nations (ASEAN) Islamic and conventional equities.

Abstract

Purpose

The purpose of this study is to examine the impact of the COVID-19 pandemic on Association of Southeast Asian Nations (ASEAN) Islamic and conventional equities.

Design/methodology/approach

To study the impact of the COVID-19 pandemic on ASEAN Islamic and conventional equities, first, the authors calculated the volatility by using exponential generalized autoregressive conditional heteroscedasticity methodology and then used Wavelet methodology to see the co-movement between the volatility and returns of ASEAN equity market indicators and COVID-19 cases.

Findings

The authors find that until the beginning of August, COVID-19 adversely relates to the returns of both the indices. The conventional index seemed to have increased volatility during the time period, whereas the Islamic index seemed to have declined volatility.

Originality/value

To the best of the authors’ knowledge, this is one of the very few studies examining the impact of the COVID-19 pandemic on ASEAN Islamic and conventional equities. Additionally, this study adds value by comparing Islamic and conventional equities.

Details

Studies in Economics and Finance, vol. 40 no. 4
Type: Research Article
ISSN: 1086-7376

Keywords

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