Are Islamic Equity Indices More Efficient Than Their Conventional Counterparts? Evidence From Major Global Index Families

Sarkar Kabir, Abdelbari Khamlichi, Mohamed Arouri, Frederic Teulon

Research output: Contribution to journalArticle

24 Citations (Scopus)

Abstract

Despite the increasing attention to ethical investments, the empirical studies on Islamic indices are scarce. Our article aims to contribute to the empirical literature by exploring the efficiency of these indices and their potential for diversification in comparison with the conventional benchmarks. We explore the existence of diversification opportunities by studying whether indices are cointegrated or not. Then, the weak-form efficiency level is analyzed by testing the random walk hypothesis using variance ratio tests. Our sample includes Islamic and mainstream indices of four indices families; among them, two Shariah-compliant indices which have not been studied before in the academic literature. Our results show that Islamic indices have the same level of (in) efficiency as conventional ones, the indices of MSCI and FTSE families are the less inefficient. In terms of cointegration analysis, Islamic indices of Dow Jones and S&P have no cointegrating relations with their respective benchmarks, which suggests the existence of long-run diversification opportunities.
Original languageEnglish
Pages (from-to)1137 – 1150
Number of pages14
JournalThe Journal of Applied Business Research
Volume30
Issue number4
DOIs
Publication statusPublished - 30 Jun 2014

Keywords

  • Islamic finance
  • Indices
  • Diversification
  • Cointegration
  • Efficiency
  • Variance ratios

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