Is there a diversification “cost” of Shari’ah compliance? empirical evidence from Malaysian equities

Mustaffa Kamil, Nazrol Kamil and Bacha, Obiyathulla Ismath and Masih, Mansur (2021) Is there a diversification “cost” of Shari’ah compliance? empirical evidence from Malaysian equities. Economic Systems, 45 (1). E-ISSN 0939-3625

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Abstract

Islamic equity portfolios work with a smaller investment universe given the filtering of non- Shari’ah compliant stocks. It has been theoretically argued that this culminates in suboptimal portfolio diversification, which in turn adversely affects risk-adjusted returns. We offer empirical evidence that such a conceived portfolio diversification “penalty” is far from a foregone conclusion, at least empirically. Our results tend to indicate that Islamic portfolios are not invariably handicapped in terms of portfolio diversification. We also explored dimensions that may account for differences in the relative investment performance between Islamic and conventional portfolios, such as portfolio constraints, short selling and market conditions. We believe this paper is among the first to apply substantial empirical analysis specifically with respect to the portfolio diversification perspective on Islamic equity investments.

Item Type:	Article (Journal)
Additional Information:	4979/88958
Uncontrolled Keywords:	Islamic equity portfolio Portfolio diversification Islamic mutual funds Analysis of covariance (ANCOVA) Efficient frontier Maximum sharpe ratio
Subjects:	H Social Sciences > HG Finance H Social Sciences > HG Finance > HG3368 Islamic Banking and Finance H Social Sciences > HG Finance > HG4501 Stocks, investment, speculation
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	Dr. Nazrol Kamil Mustaffa Kamil
Date Deposited:	02 Apr 2021 15:24
Last Modified:	02 Apr 2021 15:24
URI:	http://irep.iium.edu.my/id/eprint/88958

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