Transition to Islamic equities: Systematic risk and Shariah compliance
Balli F. Chowdhury M.I.H. de Bruin A.
February 2022Elsevier B.V.
Global Finance Journal
2022#51
This study examines the systematic risk exposure of a sample of equities, domiciled in the United States that have transitioned to ethically screened, Shariah compliant, Islamic equities. The conjecture is that the anterior and posterior risk exposures will be different. Our empirical results indicate that Shariah compliance initially creates a shock in systematic risk, but transitional behaviors subsequently diverge. Particular screening ratios also behave similarly. In effect, the capital market reinforces the risk position and increases systematic risk. However, this is essentially a transition effect. Over the entire period, we find a downward trend in systematic risk. Shariah compliance makes the adopted equities less risky over the long-term with improved market information. Our results hold even after controlling the screening ratios and conducting a number of robustness checks.
Islamic equity , Shariah compliance , Systematic risk
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Higher School of Economics and Business, Al-Farabi Kazakh National University, Kazakhstan
School of Economics and Finance, Massey University, New Zealand
Higher School of Economics and Business
School of Economics and Finance
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