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This paper aims to examine whether the Sharīʿah indices outperform the conventional indices as evident from Dhaka Stock Exchange (DSE). To achieve the objective, the study, first, assesses the risk adjusted returns of the Sharīʿah and conventional indices and compares the same between the two indices. Second, it examines the short-run and long-run associations between the two indices.

The DSEX Sharīʿah index and DSE broad index of the DSE are used as representatives of the Sharīʿah and conventional indices, respectively. The study uses monthly data for the period 2014–2018 and applies a number of techniques such as risk adjusted returns, Johansen’s cointegration test, vector error correction model, Granger causality test, forecast error variance decomposition and impulse response functions techniques.

The study reveals that albeit there is no significant difference in simple mean between the two indices, the Sharīʿah index outperforms its conventional counterpart based on the risk adjusted returns. The two indices are associated only in the long-run, while no causal relationship is spotted between them. The overall results show that the Sharīʿah index has dominance over the conventional index in Bangladesh.

The study could use more pairs of indices, including additional variables such as financial crisis and macroeconomic variables.

The study has important implications to investors, especially the religious Muslims and ethical ones, who are suggested to invest their funds in the Sharīʿah index without sacrificing returns, rather be monetarily more benefited. Moreover, the other investors can generate diversification benefits by adding both Sharīʿah and conventional indices in their portfolios in the short-run.

Unlike previous studies, this study endeavors to use a comprehensive methodology to conduct its analysis. Moreover, this is supposedly the first ever effort to conduct such a study in the context of Bangladesh.

This study aims to quantify the cost of rebalancing Sharīʿah-compliant indexes, both economically and statistically.

An empirical approach is employed where the rebalanced Sharīʿah-compliant index is calculated numerous times with different lags in rebalancing, and the number of stocks and their cost across time are determined in order to identify the optimal rebalancing frequency.

This paper finds that annual Sharīʿah rebalancing does not lead to significant differences in portfolio returns, even though it does bring some advantages in cumulative wealth starting from the third year onwards and brings about better risk-return characteristics measured in terms of the Sharpe ratio. However, these advantages involve an average annual shifting between 30 and 60% of the portfolio market capitalization, which would be costly at any level of transaction costs.

A private investor may be better off holding a constant portfolio and only rebalancing in three-year intervals since this was shown to possess similar portfolio returns and cumulative wealth results. Any advantages of annual rebalancing in terms of risk-return characteristics may be offset by transaction costs of rebalancing. Sharīʿah scholars and practitioners are to determine when the correct time for rebalancing really is, taking into consideration the cost of rebalancing vis-à-vis the advantages in cumulative wealth and risk-return characteristics of the portfolio.

Predictions that Islamic indexes will perform well during financial crises, such as the COVID-19 pandemic, miss the cost of frequent rebalancing. This paper addresses this issue in an empirical manner learning from the previous crisis in 2008.

This paper aims to develop a ranking methodology for the companies included in the Islamic indices in Turkey. Thus, this paper simplifies the decision-making process for investors with Islamic sensitivities to stock market investment when constructing their investment portfolio.

This paper uses a case study of 20 companies listed on Borsa Istanbul, drawing data from their 2017, 2018 and 2019 financial reports. These companies are scored and ranked according to their compatibility with the screening criteria used by Ziraat Katilim index in Turkey. In addition, this paper uses the quantitative screening process to calculate the ranking scores of these companies.

The findings show that some companies are highly compatible with the screening criteria, with ranking scores close to 100 points. However, some companies satisfied the criteria on the margin. This may not be a desirable result for some investors.

Only 20 companies are included in the analysis. Since the conventional accounting system is used in Turkey, it was difficult to get exact information about the companies’ Sharīʿah compatibility from the financial results.

The findings assist investors to determine which company is ethically more responsible than others within the Islamic framework. There are also implications for the companies in question, index providers and Sharīʿah scholars.

The findings aim to simplify the decision-making process of investors who have Islamic sensitivities to stock exchange market investment when they constitute their portfolio.

To the best of the authors’ knowledge, it is one of the first attempts to develop a ranking methodology for Sharīʿah-screened stocks in Turkey even though Sharīʿah screening has been on the agenda since the late 1990s. This paper also compares 11 indices based on their screening criteria.

This study aims to investigate Malaysian stock market efficiency from the view of Sharīʿah-compliant and conventional stocks based on the effectiveness of technical trading strategies.

This study uses unconventional trading strategies that mix buy recommendations of Bursa Malaysia analysts with sell signals generated from 10 selected technical trading strategies (simple moving average, moving average envelopes, Bollinger Bands, momentum, commodity channel index, relative strength index, stochastic, Williams percentage range, moving average convergence divergence oscillator and shooting star) that are detected using ChartNexus. The period from 1 January 2013 until 31 December 2015 produces a total sample consisting of 1,265 buy recommendations of 125 Sharīʿah-compliant stocks and 400 buy recommendations of conventional stocks. The study period is extended until 31 March 2016 to provide an ample time for detecting the sell signal especially for buy recommendations that are released towards the end of 2015.

The resulting Jensen’s alpha show 8 out of 10 strategies are effective in generating abnormal returns in Sharīʿah-compliant samples while only 3 out of 10 strategies are effective in conventional samples. Prominent effectiveness of technical trading strategies in Sharīʿah-compliant stocks implies clear inefficiency in that stock market segment as opposed to those of the conventional stocks.

The results based on unconventional trading strategies provide new insights of Malaysian stock market efficiency especially in Sharīʿah-compliant and conventional stocks. The paper provides more robust findings on market efficiency as firms’ equity level data were focussed together with analysts’ buy recommendations from Bursa Malaysia.

This paper aims to undertake a comprehensive comparative analysis of Sharīʿah-compliant equity investments (SCEIs) and their non-Sharīʿah counterparts, in India, conditioning for investment horizon and market volatility. Indirectly, it also investigates for time varying performance of SCEIs, and explicitly analyses the unsystematic risk and related adequacy of returns.

Testing for statistical significance of differences in risks and returns; analysing portfolio performance using conventional metrics, information ratio, and Jensen's Alpha; Estimating returns due to stock selection and market timing using Fama’s Net Selectivity and Treynor and Mazuy’s Models.

SCEIs in India do not significantly differ in their total risks and returns compared to their conventional counterparts. While their risk is lower in the monthly and quarterly investment horizons, their Jensen’s Alphas are positive only in the annual investment horizons. These findings hold, when market volatility is low. Market timing wipes out the superior returns that exist due to stock selection in SCEIs.

Being Sharīʿah-compliant is beneficial only in longer investment horizons. Asset selection, not co-movement with the market, is key to excess returns to compensate for risks due to inadequate diversification. However, only cautious market timing can conserve them.

Though investors are not better-off in choosing ethical investments, they are not worse-off either. Being Sharīʿah-compliant is rewarding during less volatile markets.

This paper extends international literature on SCEIs, with evidence on the impact of investment horizon and market volatility on their returns and risks. Further, this paper is also a comprehensive analysis of Indian SCEIs, broadening the empirical evidence on a significant, non-Islamic and emerging market.

There are a number of differences in the current Sharīʿah screening guidelines formulated by Sharīʿah scholars associated with world-renowned index providers and financial institutions. The purpose of this study is to highlight the consequences of such differences on the portfolio level outcomes for Sharīʿah-compliant investors. This study also investigates the cost of adopting an alternative stock selection methodology.

Seven Sharīʿah-compliant equity portfolios (SCEPs) are created from the active constituents of the S&P 500. Size, sector allocation and financial performance of the resulting seven portfolios are evaluated for the period 1984–2019. Style analysis is performed to attribute the difference in financial performance caused by the choice of selection criteria to different risk factors. The cost of switching the selection criteria is evaluated with turnover analysis and break-even transaction cost.

The choice of stock selection criteria has a significant effect on the size, sector bets and financial performance of the portfolios. Those portfolios which are constructed with market capitalization-based screens outperform portfolios constructed with total assets-based screens. The turnover analysis revealed that SCEPs are relatively costly in practice.

This study investigates the performance of Sharīʿah-compliant portfolios in the context of seven different screening guidelines. The effects of transaction cost and performance attribution to different risk factors represent the key contributions of this study.

This study aims to empirically compare the performance of Islamic indices vis-à-vis to their conventional counterparts in India.

The performance of the Islamic and selected conventional indices is evaluated using various risk-adjusted performance measures such as Sharpe ratio, Treynor ratio, M-square (M²) ratio, information ratio, capital asset pricing model (CAPM), Fama-French three-factor model and Carhart four-factor model in India context. The period of study is from December 2006 to 2018.

The risk-adjusted performance measures based on the Sharpe ratio, Treynor ratio, information ratio, the M² ratio show that the return of Islamic indices provides slightly superior performance. However, performance investigated using CAPM, Fama-French and Carhart benchmarks produce a statistically insignificant differences in return of the Islamic and conventional benchmarks.

The Sharīʿah-compliant indices can provide a viable, ethical and alternative investment avenue for faith-based investors as it will not make them worse off in comparison to the conventional benchmarks. This also offers opportunity to conventional investors for portfolio diversification. The promotion of faith-based investment can serve as a tool for financial inclusion to attract a huge segment of Indian population in the formal financial system. The findings of the study suffer from the limitation of small sample size and empirical methods used.

This study contributes to the literature on the comparative performance of Islamic and conventional indices in general and emerging markets, in particular, using most recent data and covering a relatively long span of time. To the best of the knowledge, this is the first comprehensive study examining the performance of Islamic indices, using multiple Islamic indices and various risk-adjusted measures in the Indian context.

This paper aims to develop a performance measure for Islamic banks (IBs) by harmonizing related studies. Furthermore, this work uses the developed yardstick to analyze the performance of a sample of 11 IBs from across different countries.

This paper uses the mix-mode method. The qualitative approach is engaged first to construct the IBs performance yardstick. Following this, the quantitative approach is applied through the use of the performance yardstick to measure the sample’s performance.

This study develops a maqāṣid-based performance yardstick adapted from previous works. The developed model in this study is called an integrated maqāṣid al-Sharīʿah--based performance measure (IMSPM). By using this performance measure, the present paper finds that the sample performed highest on the objective of nafs (self) over the three-year period. In addition, this study identifies the information which best indicates the sample’s performance during the analysis.

This paper uses the sample’s annual reports. The analysis is thus limited to informational disclosure.

Islamic banking and financial institutions may use the IMSPM to communicate a measurable report on their promotion of the maqāṣid al-Sharīʿah (objectives of Islamic law).

The evidence from 11 IBs is indicative of their efforts to realize maqāṣid al-Sharīʿah in the banking industry. This point may best challenge the practice of stigmatizing IBs for not being in line with the Sharīʿah (Islamic law) or of imitating conventional banks.

The novelty of this study lies in two points. First, this study harmonizes previous works to integrate financial and religious measures in a single yardstick. Second, by using the developed standard, this study offers a fresh insight into the global IBs’ performance, represented by 11 IBs worldwide.

This case serves as a useful backdrop for discussing a few important conceptual frameworks in the field of finance. The dilemmas are still evolving for Sharīʿah-compliant asset management company (AMC); i.e. Al Meezan, and may seem complex to the students – particularly in the Pakistan’s financial structure – but framing the discussion from a market perspective ought to help the students of finance.

This case study focuses on Al Meezan Investment Management Limited (Al Meezan) journey since inception. Al Meezan is a full-fledged Sharīʿah-compliant AMC and one of the major players in the mutual funds industry of Pakistan. Al Meezan offers a comprehensive range of Sharīʿah-compliant investment solutions especially designed to meet the financial goals of their existing and potential clients. The case study covers all the key events before the inception of Al Meezan, from late 1990s till March 2020. The case is based on interview with chief executive officer (CEO) (the protagonist) of Al Meezan. The case also covers various challenges faced by Mohammad Shoaib, CEO and his senior team, to make Al Meezan a vibrant institution offering Islamic financial services.

This case is aimed at undergraduate students in their final year (i.e. taking electives in the field of Finance/Islamic Finance) or graduate students majoring in Finance/Islamic Finance.

Teaching notes are available for educators only.

CSS1: Accounting and Finance.

This study aims to systematically explore the approaches used by previous studies in measuring the performance of Islamic banks based on maqāṣid al-Sharīʿah.

The data obtained in this study were derived from a review of empirical literature based on 15 articles published between 2012 and 2019. The sample articles on the performance of Islamic banks based on maqāṣid al-Sharīʿah were located by searching keywords in the most relevant social science research databases such as Scopus, Web of Science and EBSCOhost.

The emerging trend in measuring the performance of Islamic banks from the maqāṣid perspective highlighted that there is insufficient research on the determinants of Islamic bank performance.

The reviews undertaken in this paper will resolve the literature gaps in the area of maqāṣid al-Sharīʿah and Islamic banks, as this study serves as a reference for scholars, academicians and interested researchers in Islamic banking and finance studies to pursue more research in this area.

Performance measurement based on maqāṣid al-Sharīʿah enhances society’s confidence in supporting Islamic banking practices, particularly among the Muslim community. Islamic banks can also be exemplary financial intermediaries supporting fair and equitable financial systems for the entire community.

This paper is original in its nature, considering that understanding the relationship between maqāṣid al-Sharīʿah and the performance of Islamic banks is limited. This paper reveals a literature gap that can be explored by future studies theoretically and practically.