Are Islamic indices a viable investment avenue? An empirical study of Islamic and conventional indices in India. Issue 3 (10th June 2020)

• Record Type: Journal Article
• Authors: Alam, Mahfooz; Ansari, Valeed Ahmad
• Is Part Of: International journal of Islamic and Middle Eastern finance and management. Volume 13:Issue 3(2020)
• Page Start: 503
• Page End: 518
• Publication Date: 2020-06-10
• Subjects: Performance evaluation -- Islamic finance -- Sharīʿah compliance -- Sharīʿah index; Finance -- Religious aspects -- Islam -- Periodicals; Financial institutions -- Religious aspects -- Islam -- Periodicals; Financial institutions -- Islamic countries -- Periodicals; Finance -- Islamic countries -- Periodicals; Management -- Religious aspects -- Islam -- Periodicals; Management -- Islamic countries -- Periodicals; 332.09176705
• DOI: 10.1108/IMEFM-03-2019-0121
• Languages: English
• ISSNs: 1753-8394

Abstract

Abstract : Purpose: This study aims to empirically compare the performance of Islamic indices vis-à-vis to their conventional counterparts in India. Design/methodology/approach: The performance of the Islamic and selected conventional indices is evaluated using various risk-adjusted performance measures such as Sharpe ratio, Treynor ratio, M-square (M 2 ) ratio, information ratio, capital asset pricing model (CAPM), Fama-French three-factor model and Carhart four-factor model in India context. The period of study is from December 2006 to 2018. Findings: The risk-adjusted performance measures based on the Sharpe ratio, Treynor ratio, information ratio, the M 2 ratio show that the return of Islamic indices provides slightly superior performance. However, performance investigated using CAPM, Fama-French and Carhart benchmarks produce a statistically insignificant differences in return of the Islamic and conventional benchmarks. Research limitations/implications: The Sharīʿah-compliant indices can provide a viable, ethical and alternative investment avenue for faith-based investors as it will not make them worse off in comparison to the conventional benchmarks. This also offers opportunity to conventional investors for portfolio diversification. The promotion of faith-based investment can serve as a tool for financial inclusion to attract a huge segment of Indian population in the formal financial system. The findings of the study suffer from the limitation of small sample size and empirical methods used. Originality/value: This study contributes to the literature on the comparative performance of Islamic and conventional indices in general and emerging markets, in particular, using most recent data and covering a relatively long span of time. To the best of the knowledge, this is the first comprehensive study examining the performance of Islamic indices, using multiple Islamic indices and various risk-adjusted measures in the Indian context.