Islamic and conventional portfolios optimization under investor sentiment states: Bayesian vs Markowitz portfolio analysis

Yousra Trichilli, Mouna Boujelbène Abbes and Afif Masmoudi

Research in International Business and Finance, 2020, vol. 51, issue C

Abstract: This paper investigates the portfolio optimization under investor’s sentiment states of Hidden Markov model and over a different time horizon during the period 2004–2016. To compare the efficient portfolios of the Islamic and the conventional stock indexes, we have employed two approaches: the Bayesian and Markowitz mean-variance. Our findings reveal that the Bayesian efficient frontier of Islamic and conventional stock portfolios is affected by the investor’s sentiment state and the time horizon. Our findings also indicate that the investor’s sentiment regimes change the Islamic and the conventional optimal diversified portfolios.

Keywords: Portfolio optimization; Islamic indices; Investor’s sentiment; Hidden markov model; Efficient frontier; Bayesian approach (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531918310547

DOI: 10.1016/j.ribaf.2019.101071

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