Harvesting Islamic risk premium with long–short strategies: A time scale decomposition using the wavelet theory

Rida Ahroum and Boujemâa Achchab

International Journal of Finance & Economics, 2021, vol. 26, issue 1, 430-444

Abstract: The impact of the Islamic screening on the performance of stock and sukuk investments is subject of a serious debate. The aim of this paper is to contribute to the ongoing studies on Islamic markets by giving new insights about characteristics of the Islamic risk premium. To attempt this objective, we adopt a risk premia methodology using long–short strategies and a time scale decomposition to find out the scale and the intensity degree of this effect over time. Furthermore, we consider the Islamic risk premium as a market factor. Wavelet analysis results in Malaysia highlight the presence of the Islamic effect at low frequency bands and a higher intensity among the corporate debt market. However, this approach's effectiveness is conditioned to the existence of Islamic and conventional benchmarks.

Date: 2021
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https://doi.org/10.1002/ijfe.1797

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Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:26:y:2021:i:1:p:430-444

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