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

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    Abstract

    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
    Volume53
    Early online date25 Oct 2018
    DOIs
    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:
    10.1016/j.pacfin.2018.10.009

    Keywords

    • Dynamic optimisation
    • Emerging markets
    • ETFs
    • Islamic assets

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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