Idiosyncratic Risk of Investing in Islamic Capital Market Equities

Posted: 16 Dec 2012 Last revised: 19 Mar 2015

See all articles by Rashid Ameer

Rashid Ameer

IPU New Zealand Tertairy Institute

Date Written: December 15, 2012

Abstract

This paper investigates the idiosyncratic risk of investing in the Islamic capital market equities. It aims to answer the question: do stocks which are included (excluded) in the Shari’ah index have higher (lower) idiosyncratic risks? We used FTSE Bursa Malaysia EMAS Shari’ah Index (FBMEI) launched in 2007 to investigate whether stocks added and deleted from this Shari’ah compliant index had higher or lower idiosyncratic risks. The estimation results show that, the idiosyncratic risk of stocks added to the FBMEI was high during the bearish market and low during the bullish market. Our estimation results from a rolling CAPM regression show that, on average idiosyncratic risk for the stocks deleted from the FBMEI is relatively higher compared to idiosyncratic risk for the stocks added to the FBMEI. Stocks added (deleted) had higher (lower) idiosyncratic risks during the index revisions prior to June 2009. Our findings also suggest that there is a relationship between VaR and idiosyncratic risk.

Keywords: Idiosyncratic risk, Islamic capital market equities

JEL Classification: G10

Suggested Citation

Ameer, Rashid, Idiosyncratic Risk of Investing in Islamic Capital Market Equities (December 15, 2012). 2013 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2189935

Rashid Ameer (Contact Author)

IPU New Zealand Tertairy Institute ( email )

57 Aokautere Drive
Fitzherbert
Palmerston north
New Zealand

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