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Are Islamic indices a viable investment avenue? An empirical study of Islamic and conventional indices in India

Are Islamic indices a viable investment avenue? An empirical study of Islamic and conventional... This study aims to empirically compare the performance of Islamic indices vis-à-vis to their conventional counterparts in India.Design/methodology/approachThe 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.FindingsThe 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.Research limitations/implicationsThe 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.Originality/valueThis 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Islamic and Middle Eastern Finance and Management Emerald Publishing

Are Islamic indices a viable investment avenue? An empirical study of Islamic and conventional indices in India

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References (49)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-8394
DOI
10.1108/imefm-03-2019-0121
Publisher site
See Article on Publisher Site

Abstract

This study aims to empirically compare the performance of Islamic indices vis-à-vis to their conventional counterparts in India.Design/methodology/approachThe 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.FindingsThe 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.Research limitations/implicationsThe 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.Originality/valueThis 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.

Journal

International Journal of Islamic and Middle Eastern Finance and Management – Emerald Publishing

Published: Jul 7, 2020

Keywords: Performance evaluation; Islamic finance; Sharīʿah compliance; Sharīʿah index

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