Macro-financial regimes and performance of Shariah-compliant equity portfolios
Muhammad Wajid Raza and
Journal of International Financial Markets, Institutions and Money, 2019, vol. 60, issue C, 252-266
This study proposes the Markov Regime Driven Style allocation (MRDS) strategy for Shariah-compliant portfolio construction, a forward-looking methodology that merges economic forecasting with Shariah-compliant investment principles. By using Shariah-compliant equities from the S&P 500 universe over the period 1986–2016, we find that a Shariah-compliant investor can achieve stable performance by dynamically allocating across investment styles determined from the macro-financial information, as compared with various single style strategies. The MRDS improves both the level and stability of relative performance. This strategy also successfully mitigates risk by reducing volatility, value-at-risk, and portfolio drawdowns.
Keywords: Shariah-compliant investing; Market capitalization; Fundamental-weighting; Equal-weighting; Low-risk weighting (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:60:y:2019:i:c:p:252-266
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