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Diversification benefits of Shari'ah compliant equity ETFs in emerging markets

Samar Gad and Panagiotis Andrikopoulos ()

Pacific-Basin Finance Journal, 2019, vol. 53, issue C, 133-144

Abstract: Previous studies on the performance of Islamic finance and banking have been more comparative than experimental when it comes to the role and effect of Islamic (Shari'ah compliant) assets in a conventional setting. This paper investigates whether Shari'ah compliant exchange-traded funds (ETFs) have potential diversification benefits to a volatile portfolio of conventional investments in emerging markets. The results suggest that such assets not only improve the risk-adjusted returns of portfolios but also receive proportionally higher weight during crisis periods. Hence, institutional investors should consider the ‘religion effect’ when they manage their assets, given the evidence regarding the outperformance of Shari'ah compliant equity relative to their conventional peers.

Keywords: Emerging markets; Islamic assets; Dynamic optimisation; ETFs (search for similar items in EconPapers)
JEL-codes: G01 G01 G11 G23 (search for similar items in EconPapers)
Date: 2019
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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:133-144