Risk and Performance of Islamic Indexes During Subprime Crisis

Abstract

We looked for evaluating and comparing the risk and performance of both Islamic and conventional indices during subprime crisis. We used daily closing stock indices data of the Dow Jones Index series and we evaluated the volatilities of Islamic indices over a period of eleven years. The results suggested that Islamic indexes family is not fully sheltered from the subprime crisis. Similar to the conventional indexes, all Islamic indexes recorded lower average returns and higher volatility in the crisis period compared to the pre-crisis as well as after crisis period. However, outcomes results from Sharpe ratio, Treynor index and Jensen’s alpha affirm that the impact of the crisis on ethical investment is as severe as it is on the conventional peers except four Islamic index that prove their resilience versus their counterparts during turbulent time and they continue their outperformance even during calmness period. Meanwhile, geographical factor is shown to be relevant diversification criteria particularly during the crisis period. In term of portfolio diversification benefits, investors should be aware of the market condition in strategizing their capital portfolio in the context of both the level of development and also depending on geographical area and ethics factors.