Performance of Shariah Compliant Index: A Comparative Study of India and Malaysia

Abstract

To meet the increasing demand for Shariah Compliant Investment Avenues in equity markets, number of Islamic Indices have been launched worldover. As on today there are hundreds of Shariah Compliant Indices launched in different countries. Dow Jones and FTSE Global were the first to launch the Shariah Compliant Index namely DJIMI and FTSE Global Islamic Index Series (GIIS). Following the trend, MSCI also introduced Islamic Indices which are constructed from the conventional MSCI country Indices and cover seventy developed, emerged and frontier market countries including regions such as the Gulf cooperation Council countries and Arabian markets. While a number of Shariah compliant Indices have been launched by different publishers like S&P, MSCI, FTSE, Dow Jones and Russell to meet the growing demand but a very few studies have been conducted to assess the performance of these indices in comparison to their counterpart indices in terms of their risk and return. The present study has been undertaken to assess and compare the performance of MSCI India Islamic index and MSCI Malaysia islamic index with their respective conventional Indices for eleven years time period i.e, 2003 to 2013. Also the behaviour of Islamic Indices is studied during recent financial crises. To assess the performance of these indices, average monthly raw returns, risk adjusted monthly returns were calculated using time series data of daily closing prices. To assess the risk involved Beta and standard deviation has been used. The study has revealed that in India Islamic Indices has under performed while as in case of Malaysia, it has outperformed the respective conventional Index during period under study. However in both cases Islamic Index has outperformed its counterpart index during crises period.