Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations

Mohamed Arouri, Hachmi Ben Ameur, N. Jawadi, F. Jawadi and W. Louhichi
Authors registered in the RePEc Author Service: Fredj JAWADI and Nabila Jawadi ()

Applied Economics, 2013, vol. 45, issue 24, 3412-3420

Abstract: Does Islamic finance constitute a promising solution for the current global financial crisis and are Islamic financial innovations enough to reassure investors, stabilize financial systems and provide them with a means of escaping from financial downturns? This article addresses these questions while investigating the dynamics of Islamic and conventional stock prices over the last few years. In particular, we apply Multivariate Vector Autoregressive (VAR) tools to test the interaction between conventional and Islamic financial products, and implement the Granger causality test to specify the dependence orientation of feedback between Islamic and conventional stock prices. Our article differs from previous work on the topic in that it develops portfolio simulations to determine whether Islamic finance can supplant conventional finance by generating investment and diversification opportunities during periods of crisis. In addition, we develop optimal portfolio strategies and investment proportions for conventional and Islamic funds to ensure the best resource allocation. Our main findings are: (i) the impact of the current crisis on the Islamic finance industry is less marked than on conventional finance, (ii) investment in Islamic products generates high returns, (iii) portfolios that include Islamic products reduce systemic risk and generate significant diversification benefits, (iv) the US crisis has led to significant changes in resource allocation through changes in investment choices.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2012.707776 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations (2013)
Working Paper: Are Islamic finance innovations enough for investors to escape from a financial downturn? Further evidence from portfolio simulations (2013)
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:taf:applec:v:45:y:2013:i:24:p:3412-3420

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2012.707776

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().