Adaptive Market Hypothesis: A Comparison of Islamic and Conventional Stock Indices

Muhammad Akbar, Shahid Ali, Ihsan Ullah and Naser Rehman

No 15, CAFE Working Papers from Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University

Abstract: We assess informational efficiency of nine Dow Jones Islamic market indices and their counterpart conventional Morgan Stanley indices using data from 1996 to 2020. We test the martingale difference hypothesis of no return predictability overtime and assess the adaptive market hypothesis over different market conditions. We find that the null is rejected in a number of periods in line with the adaptive market hypothesis for both Islamic and conventional stock indices. However, we do not observe any significant differences in return predictability between Islamic and conventional stocks over different market conditions including financial crisis of 2007-08 and COVID-19 pandemic.

Date: 2021-06-16
New Economics Papers: this item is included in nep-fmk, nep-hme and nep-isf
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