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Do ‘sin stocks’ deprive Islamic stock portfolios of diversification? Some insights from the use of MGARCH-DCC

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dc.contributor.authorMustaffa Kamil, Nazrol Kamil
dc.contributor.authorMohammed Masih, Abul Mansur
dc.contributor.authorObiyathulla Ismath Bacha
dc.date.accessioned2016-06-06
dc.date.accessioned2016-07-25T20:05:48Z
dc.date.available2016-06-06
dc.date.available2016-07-25T20:05:48Z
dc.date.disclosure2016-06-10
dc.date.issued2012
dc.description.abstractThere is this argument that Shari’ah compliant portfolios are at a disadvantage in terms of portfolio diversification given that the exclusion of ‘sin stocks’ shrinks the Islamic investor’s investment universe. This paper investigates first, whether there is empirical evidence to substantiate such a claim, and second, can something be done to alleviate this disadvantage. Our results show that there is statistical evidence that Islamic portfolios are deprived of some benefits of diversification, at the sector level. However, the empirical evidence does not permit us to generalise such a finding at the specific stock level. By analysing the temporal characteristics of correlations using MGARCH-DCC, we argue that Islamic portfolios can minimise loss of diversification benefit by adopting appropriate portfolio allocation strategies. In particular, market sentiment and commodity prices are two key variables that can drive portfolio allocation switching decisions. In short, while there is some evidence that investors of Shari’ah compliant portfolios are denied additional benefits of diversification, there are arguably avenues to mitigate such a disadvantage.
dc.identifier.citationMustaffa Kamil, Nazrol Kamil and Bacha, Obiyathulla Ismath and Mohammed Masih, Abul Mansur. (2012). Do ‘sin stocks’ deprive Islamic stock portfolios of diversification? Some insights from the use of MGARCH-DCC. Capital Markets Review, 20, pp. 43-64.
dc.identifier.issn1823-4445
dc.identifier.urihttps://ikr.inceif.org/handle/INCEIF/1429
dc.languageEnglish
dc.language.isoeng
dc.publisherBursa Malaysia & Malaysian Finance Association
dc.rights2012. Bursa Malaysia & Malaysian Finance Association
dc.sourceCRP
dc.subjectPortfolio diversification
dc.subjectShari’ah compliant portfolios
dc.subjectIslamic stocks
dc.subjectIslamic capital market
dc.subjectMGARCH
dc.subjectDynamic conditional correlation (DCC)
dc.titleDo ‘sin stocks’ deprive Islamic stock portfolios of diversification? Some insights from the use of MGARCH-DCC
dc.typeJournal Article
dlc.maintopicIslamic capital markets
dlc.subtopicShariah compliant foreign exchange markets
dspace.entity.typePublication
ikr.doctypeScholarly Works
ikr.topic.maintopicIslamic capital markets
ikr.topic.subtopicIslamic capital markets
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