The relative risk performance of Islamic finance: A new guide to less risky investments

Haitham A. Al-Zoubi, Aktham I. Maghyereh

    Research output: Contribution to journalArticlepeer-review

    48 Citations (Scopus)

    Abstract

    We examine the relative risk performance of the Dow Jones Islamic Index (DJIS) and find that the index outperforms the Dow Jones (DJIM) WORLD Index in terms of risk. Using the most recent Value-at-Risk (VaR) methodologies (RiskMetrics, Student-t APARCH, and skewed Student-t APARCH) on the 1996-2005 period, and assuming one-day holding period for both indices with a moving window of 500 day data, we show that the value of VaR is greater for DJIM WORLD than for DJIS Islamic. We interpret the results mainly to the profit-and-loss sharing principle of Islamic finance where banks share the profits and bear losses (Mudarabah) or share both profits and losses (Musharaka) with the firm.

    Original languageEnglish
    Pages (from-to)235-249
    Number of pages15
    JournalInternational Journal of Theoretical and Applied Finance
    Volume10
    Issue number2
    DOIs
    Publication statusPublished - Mar 1 2007

    Keywords

    • Islamic investment
    • Profit-and-loss sharing
    • Risk performance
    • Value-at-Risk

    ASJC Scopus subject areas

    • Finance
    • Economics, Econometrics and Finance(all)

    Fingerprint

    Dive into the research topics of 'The relative risk performance of Islamic finance: A new guide to less risky investments'. Together they form a unique fingerprint.

    Cite this