Do ‘Shariah’ indices surpass conventional indices? A study on Dhaka Stock Exchange

Md. Bokhtiar Hasan Aarif, Muhammad Rafiqul Islam Rafiq and Abu N.M. Wahid

International Journal of Islamic and Middle Eastern Finance and Management, 2020, vol. 14, issue 1, 94-113

Abstract: Purpose - This paper aims to examine whether the Sharīʿah indices outperform the conventional indices as evident from Dhaka Stock Exchange (DSE). To achieve the objective, the study, first, assesses the risk adjusted returns of the Sharīʿah and conventional indices and compares the same between the two indices. Second, it examines the short-run and long-run associations between the two indices. Design/methodology/approach - The DSEX Sharīʿah index and DSE broad index of the DSE are used as representatives of the Sharīʿah and conventional indices, respectively. The study uses monthly data for the period 2014–2018 and applies a number of techniques such as risk adjusted returns, Johansen’s cointegration test, vector error correction model, Granger causality test, forecast error variance decomposition and impulse response functions techniques. Findings - The study reveals that albeit there is no significant difference in simple mean between the two indices, the Sharīʿah index outperforms its conventional counterpart based on the risk adjusted returns. The two indices are associated only in the long-run, while no causal relationship is spotted between them. The overall results show that the Sharīʿah index has dominance over the conventional index in Bangladesh. Research limitations/implications - The study could use more pairs of indices, including additional variables such as financial crisis and macroeconomic variables. Practical implications - The study has important implications to investors, especially the religious Muslims and ethical ones, who are suggested to invest their funds in the Sharīʿah index without sacrificing returns, rather be monetarily more benefited. Moreover, the other investors can generate diversification benefits by adding both Sharīʿah and conventional indices in their portfolios in the short-run. Originality/value - Unlike previous studies, this study endeavors to use a comprehensive methodology to conduct its analysis. Moreover, this is supposedly the first ever effort to conduct such a study in the context of Bangladesh.

Keywords: Sharīʿah index; Conventional index; Risk adjusted performance; Cointegration; VEC model; Causality; Bangladesh; Johansen cointegration test; Granger causality test; C32; C58; G10; G11 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-01-2020-0027

DOI: 10.1108/IMEFM-01-2020-0027

Access Statistics for this article

International Journal of Islamic and Middle Eastern Finance and Management is currently edited by Prof M. Kabir Hassan

More articles in International Journal of Islamic and Middle Eastern Finance and Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().