Faith-Based Ethical Investing: The Case of Dow Jones Islamic Indexes

Networks Financial Institute Working Paper No. 2011-WP-06

41 Pages Posted: 19 Apr 2011

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Eric Girard

Siena College - School of Business

Date Written: April 2011

Abstract

This paper examines the performance of seven indexes chosen from the Dow Jones Islamic Market Index (DJIM) vis-à-vis their non-Islamic counterparts using a variety of measures such as Sharpe, Treynor, Jensen and Fama’s selectivity, net selectivity and diversification. Second, we examine the persistence of performance using Carhart’s (1997) four factor pricing models. Third, we use cointegration to examine how the Islamic indexes compare to their non-Islamic counterparts. The sample period is from January 1996 to December 2005 (120 data points). It is further broken down into two sub-periods: January 1996 to December 2000 (60 data points) and January 2001 to December 2006 (60 data points). We find no difference between Islamic and non-Islamic indexes. The Dow Jones Islamic indexes outperform their conventional counterparts from 1996 to 2000 and underperform them from 2001 to 2005. Overall, similar reward to risk and diversification benefits exist for both the Islamic and conventional indexes.

Keywords: Ethical Investing, Dow Jones Islamic Market Index, Performance Measures.

JEL Classification: G11, G15, G24.

Suggested Citation

Hassan, M. Kabir and Girard, Eric, Faith-Based Ethical Investing: The Case of Dow Jones Islamic Indexes (April 2011). Networks Financial Institute Working Paper No. 2011-WP-06, Available at SSRN: https://ssrn.com/abstract=1808853 or http://dx.doi.org/10.2139/ssrn.1808853

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Eric Girard

Siena College - School of Business ( email )

Siena Hall 301
515 Loudon Road
Loudonville, NY 12211-1462
United States

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