Essays on Islamic equity investing
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Islamic finance is rapidly gaining momentum around the world. Interpretations of Shari’ah, or Islamic law, state that investments must be free from elements of riba (interest), gharar (uncertainty), maysir (speculation) and haram (unethical) business activities. Islamic equity investing, therefore, utilizes a set of business activity screens and accounting-based screens to exclude firms considered non-permissible under Shari’ah. Despite increased academic interest, there is still much uncertainty surrounding the financial implications of these investment principles. This Ph.D. thesis, comprised of three empirical essays, aims to contribute to this debate. The first essay offers a comprehensive examination of Islamic equity index performance. The findings show that Islamic equity indices have exhibited abnormal returns on a global and developed market level, primarily due to their exclusion of stocks in the financial services sector. The second essay attempts to study the determinants of Islamic investments’ financial performance, with a particular focus on the role of country-level factors. The third essay studies performance related issues associated with the accounting-based screening process. A significant proportion of these screens are documented to contribute positively to risk-adjusted performance, most notably in periods of financial market turmoil.
Thesis, PhD Doctor of Philosophy