Diversification Benefits of Shari’ah Compliant Equity ETFs in Emerging Markets

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Previous studies on the performance of Islamic finance and banking have been more comparative than experimental when it comes to the role and effect of Islamic (Shari'ah compliant) assets in a conventional setting. This paper investigates whether Shari'ah compliant exchange-traded funds (ETFs) have potential diversification benefits to a volatile portfolio of conventional investments in emerging markets. The results suggest that such assets not only improve the risk-adjusted returns of portfolios but also receive proportionally higher weight during crisis periods. Hence, institutional investors should consider the ‘religion effect’ when they manage their assets, given the evidence regarding the outperformance of Shari'ah compliant equity relative to their conventional peers.

Original languageEnglish
Pages (from-to)133-144
Number of pages12
JournalPacific-Basin Finance Journal
Early online date25 Oct 2018
Publication statusPublished - Feb 2019

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in
Pacific-Basin Finance Journal. Changes resulting from the publishing process, such
as peer review, editing, corrections, structural formatting, and other quality
control mechanisms may not be reflected in this document. Changes may have
been made to this work since it was submitted for publication. A definitive version
was subsequently published in Pacific-Basin Finance Journal Vol 53(2019) DOI:


  • Dynamic optimisation
  • Emerging markets
  • ETFs
  • Islamic assets

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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