Do Islamic equity indexes outperform their conventional counterparts during normal times and global financial crises?

Proceedings of The 2nd International Conference on Management, Economics, and Finance

Year: 2019

DOI: https://www.doi.org/10.33422/2nd.icmef.2019.11.718

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Do Islamic equity indexes outperform their conventional counterparts during normal times and global financial crises?

Khamis Hamed Al-Yahyaee , Walid Mensi, Mobeen Ur Rehman and Sang Hoon Kang

ABSTRACT: 

This paper compares the performance of Islamic and conventional Dow Jones stock markets for twenty sectors during the recent pre- and post-crises periods, namely the global financial crisis (GFC) and the European sovereign debt crisis (ESDC). We apply different performance measures such as the Sharpe, Roy, Treynor, Omega, Information ratios, and the Jensen Alpha based on C, and the Alpha Jensen based on the CAPM-EGARCH model. Results using the Information ratio (Alpha Jensen), conventional (Islamic) equity returns dominate Islamic (conventional) equity returns during the full sample period. However, the pre-crises periods are dominated by higher conventional equity returns, irrespective of the employed return measures. During the post-crises periods, Islamic equity returns outperform their conventional counterparts in most cases. During the GFC and ESDC, Islamic equity returns dominate their conventional counterparts. These results are important for global investors to benefit from diversified investment opportunities.

Keywords: Islamic stock markets; Conventional stock markets; Sectors; Performance indexes.