EconPapers    
Economics at your fingertips  
 

Does the shariah index move together with the conventional equity indexes?

Kwang Suk Park and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Generally, Shariah (Islamic) indices are considered to have lower portfolio betas relative to conventional ones. The lower portfolio beta of Islamic indexes is a logical result of Shariah screening. As Shariah screening eliminates stocks with high financial leverage, the resulting portfolio beta ought to be lower because a stock’s beta is reflective of the underlying business risk and financial risk (leverage). With this motivation and background, we have tried to find out whether we can have diversification opportunities with combining Shariah index and conventional indexes. The results of analysis revealed the absence of cointegration between the DJIM index and three conventional indexes such as DAX, HangSeng, KL. This means that diversification opportunities exist for the mentioned indices. But for the S&P and DJIM, we found that they are cointegrated, which implies there exists long run theoretical relationship among the indices. Presence of cointegration indicates the absence of diversification opportunities in the concerned indices. So if we want to get diversification effect, we have to avoid setting up the portfolio with S&P and DJIM with the balanced weight. Because these two variables move together, the investors are not likely to get the positive portfolio effect particularly in the long term.

Keywords: Shariah (Islamic) Index; diversification; cointegration (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 G15 (search for similar items in EconPapers)
Date: 2015-01-20
New Economics Papers: this item is included in nep-mac and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/63925/1/MPRA_paper_63925.pdf original version (application/pdf)

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:pra:mprapa:63925

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2023-11-11
Handle: RePEc:pra:mprapa:63925