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Macro-financial regimes and performance of Shariah-compliant equity portfolios

Kris Boudt, Muhammad Wajid Raza and Dawood Ashraf

Journal of International Financial Markets, Institutions and Money, 2019, vol. 60, issue C, 252-266

Abstract: 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)
Date: 2019
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DOI: 10.1016/j.intfin.2019.01.001

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Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

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