Publication:
Risk-return characteristics of Islamic equity indices: multi-timescales analysis
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Date
2015
SDG:
Abstract
This paper is motivated by the heightened interest in investing in Islamic equities. The paper is the first attempt at analysing the risk-return characteristics of Islamic indices at different timescales by applying a relatively new approach in finance known as wavelet analysis. We analyze the Dow Jones indices of 11 countries, mostly emerging markets, and 10 global sectors between 2008 and 2012. We focus on exploring the multi-horizon nature of systemic risk (market beta), average return, volatility, and correlation. We find that the differences in betas between Islamic and conventional indices at most of the timescales are not statistically significant. A few exceptions show equal returns with lower risks for Islamic indices mostly at higher time scales (longer horizons) in some countries as well as 6 out of 10 sectors. We also find lower correlations for some Islamic sector-pairs (financials, utilities and consumer services) at lower time scales (shorter horizons).
Keywords
Shariah-compliant stocks , Risk-return profile , Systemic risk , Wavelet analysis , Islamic finance
Citation
Dewandaru, G., Bacha, O. I., Mohammed Masih, A. M., & Masih, R. (2015). Risk-return characteristics of Islamic equity indices: multi-timescales analysis. Journal of Multinational Financial Management, 29, 115–138. https://doi.org/10.1016/j.mulfin.2014.11.006
Publisher
Elsevier