What are the differences and similarities between the shariah indices
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Differences and Similarities Between Shariah Indices
Performance Comparison of Shariah Indices
FTSE Bursa Malaysia EMAS Shariah (FBMS) vs. Indonesia Sharia Stock Index (ISSI)
A comparative study on the performance of the FTSE Bursa Malaysia EMAS Shariah (FBMS) and the Indonesia Sharia Stock Index (ISSI) reveals no significant differences in their performance when measured using the Sharpe, Treynor, and Jensen ratios. This study utilized monthly index returns over a period from July 2012 to June 2012 and employed hypothesis testing through a Two Independent Samples t-test. The results indicate that both indices perform similarly, suggesting that investors in Malaysia and Indonesia can expect comparable returns from these Shariah-compliant indices1.
Nifty Shariah Index vs. Nifty Index in India
In India, the Nifty Shariah index and the general Nifty index were analyzed for their risk and return characteristics over a period from January 2007 to December 2010. The study found that the Nifty Shariah index underperformed compared to the Nifty index during both bull and bear market periods. However, the mean difference in returns between the two indices was not statistically significant, indicating consistent performance. Additionally, the Nifty Shariah index exhibited lower volatility compared to the Nifty index, suggesting a more stable investment option2.
DSEX Shariah Index vs. DSE Broad Index in Bangladesh
An analysis of the DSEX Shariah index and the DSE broad index in Bangladesh from 2014 to 2018 showed that the Shariah index outperformed the conventional index based on risk-adjusted returns. While there was no significant difference in simple mean returns, the Shariah index demonstrated better performance when adjusted for risk. The study also found that the two indices are associated in the long run but do not exhibit a causal relationship in the short run. This suggests that the Shariah index may offer better long-term investment benefits3.
Shariah Screening Methodologies
Comparison Between Pakistan and Malaysia
The Shariah screening processes in Pakistan and Malaysia involve both business and financial screens. The Securities Commission of Malaysia and the KSE Meezan Index (KMI-30) of Pakistan use different methodologies for screening. While there are similarities in the criteria used, there are also notable differences. The study highlights the need for standardization of Shariah screening processes to aid in the development of the Islamic Capital Market (ICM) globally4.
Risk and Sentiment Analysis
Shariah Index in the Indian Stock Market
A study on the Indian stock market examined the relationship between Shariah index returns and investor sentiments, risk, and macroeconomic factors. Using the wavelet method to decompose these variables into different time series frequencies, the study found that risk-based explanations are more relevant for Shariah index return behavior. Investor sentiments were found to affect short-term returns, but there was no significant sentiment pricing after controlling for systematic risk factors. This suggests that Shariah-compliant stocks may hedge against investor sentiment fluctuations during volatile market conditions5.
Conclusion
In summary, Shariah indices across different countries exhibit both similarities and differences in performance, risk, and screening methodologies. While some indices like the FBMS and ISSI show no significant performance differences, others like the DSEX Shariah index outperform their conventional counterparts on a risk-adjusted basis. The screening methodologies also vary, highlighting the need for standardization. Additionally, Shariah indices may offer stability and hedge against investor sentiment risks, making them a viable option for ethical and risk-averse investors.
Sources and full results
Most relevant research papers on this topic
Comparative study between the performances of two Islamic indices - Study on FTSE Bursa Malaysia EMAS Shariah (FBMS) and Indonesia Sharia Stock Index (ISSI)
There is no significant difference between the performance of FTSE Bursa Malaysia EMAS Shariah (FBMS) and Indonesia Sharia Stock Index (ISSI) using Sharpe, Treynor, and Jensen ratios.
Equanimity of Risk and Return Relationship between Shariah Index and General Index in India
Nifty Shariah and Nifty indices in India perform similarly, with both underperforming risk-free rates of return and having low volatility.
Highly CitedDo ‘Shariah’ indices surpass conventional indices? A study on Dhaka Stock Exchange
Shariah indices outperform conventional indices in Bangladesh, with risk-adjusted returns showing a dominance over conventional indices.
Sharia Screening Process: A Comparison of Pakistan and Malaysia
Standardization of Sharia screening processes is needed to improve the development of Islamic capital markets worldwide.
Does Shariah index hedge against sentiment risk? Evidence from Indian stock market using time–frequency domain approach
Sharia index returns in the Indian stock market are more influenced by risk-based explanations than investor sentiment, with macro variables playing a significant role and sentiment pricing not significant after controlling for systematic risk factors.
DISPUTES AND RESEMBLANCE: COMPARATIVE ANALYSIS OF SHARIAH ADVISORY COMMITTEE METHODOLOGY AND INTERNATIONAL INDICES
The revised Shariah screening methodology of Malaysia's SAC and international indices show similarity, but further discussions on implications and detail filters are needed for convincing international investors.
Modelling the Return of Shariah with Underlying Indices of National Stock Exchange of India: A Case of 3SLS and GMM Estimation
Shariah indices provide better returns and lesser risk than their underlying indices, making them a better option for portfolios.
Review and analysis of current Shariah‐compliant equity screening practices
Current Shariah screening procedures are inconsistent, highlighting the need for a standardized framework to improve the credibility and consistency of Islamic equity products.
Highly CitedFindriver- Driven Relationship among Shariah Compliant Indian and Indonesian Indices – An Empirical Evidence using Granger Causality
There is a reciprocity between India's Shariah indices, Nifty 500 and S&P BSE 500, but no relationship between IDX Shariah and Jakarta Islamic Index.
Time-Frequency Connectedness between Shariah Indices in a Systemic Crisis Era
Asian Shariah assets have been a perfect hedge against market shocks over the last decade, with significant time-dependent connections between regional and world Shariah indices.
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