Abstract
This study compares the performance of sector portfolios from Islamic and conventional stock markets, using standard as well as current performance measures for a recent sample period between January 1996 and December 2015. Furthermore, to test the robustness of our analysis and to determine which type of portfolios offer better performance depending on the economic cycle, the full sample period is divided into three sub-sample periods: Before, during and after the recent global financial crisis. The three main outcomes of this research confirm that, first, the sector with the best performance results is Health Care, while the sector with the worst performance results is Financials for the Islamic as well as the conventional stock market. Second, the post-crisis sub-period exhibits the best performance not only in conventional but also in Islamic markets, confirming that portfolio performance depends on the economic stage and highlighting emerging signs of economic recovery. Third, Islamic sector portfolios, as a whole, show better performance than conventional sector portfolios for all performance measures—not just for the full period but also for the three sub-sample periods. The superior risk-adjusted returns of the Islamic sector portfolios, even during the recent global financial crisis, can be justified, among other reasons, by the moderated uncertainty and speculation, as well as the fact that Islamic finance prevents interest rates that have a negative impact on the economy. Thus, Sharia-compliant assets can contribute to improving the sustainability of unattractive performance portfolios during financial crises.
Highlights
IntroductionIntroduction and Literature ReviewThere is a huge amount of research that focuses on Islamic portfolios, aimed mainly at Sharia-compliant investors related to finance limitations [1]
Introduction and Literature ReviewThere is a huge amount of research that focuses on Islamic portfolios, aimed mainly at Sharia-compliant investors related to finance limitations [1]
The performance measures of conventional and Islamic sector portfolios are compiled which is divided into four headings
Summary
Introduction and Literature ReviewThere is a huge amount of research that focuses on Islamic portfolios, aimed mainly at Sharia-compliant investors related to finance limitations [1]. Reference [2] compared nine Islamic and conventional indices and found that the Islamic indices showed a better performance than the conventional indices during the last financial crisis period In this line, reference [3] examined twelve Islamic and conventional stock markets and they found that the efficiency of the Islamic stock markets is higher than the conventional stock markets due to their peculiarities and Sharia-compliant laws, among other reasons. Other studies show the advantages of portfolio diversification in Islamic stocks and the desirability of using Islamic finance instruments for hedging, as safe havens One such example is the study by [4], who researched the connectedness between stocks from Islamic and conventional markets in five countries. Reference [5] found that Islamic as well as conventional indices emulate an analogous cyclical pattern and, Islamic equities provide portfolio diversification benefits because of their reduced systematic risk
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