Which Islamic Index to Invest?

Burak Doğan and Umut Ugurlu ()
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Burak Doğan: Department of Economics, Faculty of Economics Administrative and Social Sciences, Bahçeşehir University, 34353 Istanbul, Turkey
Umut Ugurlu: Department of International Finance, Faculty of Economics Administrative and Social Sciences, Bahçeşehir University, 34353 Istanbul, Turkey

JRFM, 2025, vol. 18, issue 11, 1-19

Abstract: This paper compares the rulebooks of five main Shariah-compliant equity indices—DJIMI, KLSI, FTSE Shariah, MSCI Islamic, and STOXX Europe Islamic 50—inside one fixed S&P 500 stock list from Q1 2019 to Q4 2023. For each index, we build both equally weighted and market-capitalization-weighted portfolios, then check their performances with the Sharpe, Treynor, and Jensen’s alpha ratios. All Islamic portfolios beat the regular S&P 500 after adjusting for risk, with STOXX as the most stable winner. Its market-cap version reaches a level of 253.01 by Q4 2023, far above the S&P 500 level of 210.46. Market-cap portfolios, in general, perform better than equally weighted ones. Furthermore, STOXX offer better protection in rough markets, while DJIMI shows relatively better performance when prices recover. Most rule sets cause small advantages to the Islamic portfolios compared to conventional ones, but STOXX’s 33% limit on leverage and liquidity results in higher Sharpe ratios. These results suggest that screening details shape portfolio behavior and point to the need for one clear, shared Shariah rulebook so investors can compare products with confidence. From a business ethics view, our study also shows that strict and open screening brings a real “moral dividend”, as follows: smaller losses when markets fall and stronger risk-adjusted returns overall, linking faith-based rules to the wider talk on responsible investing and stakeholder welfare.

Keywords: Islamic finance; Islamic portfolio; Shariah compliance; portfolio performance; risk-adjusted return; Sharpe ratio (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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