What Does the U.S. Reits Market Have in Store for Non-Conventional Investors? The Case of Shariah Compliance
Posted: 21 May 2019
Date Written: December 1, 2014
We model the behavior of a hypothetical investor who is interested in U.S. securities but is also interested in compliance with Islamic Investment Guidelines. We apply financial restrictions to 1990-2010 sample of Shariah-recommended REITs. In cumulative performance tests, we find an evidence of outperformance associated with compliance during the entire study period and during the early 2000s recession and the late 2000s financial crisis. In risk-adjusted tests with a univariate model, we also find consistent evidence of outperformance during the entire study period and in times of economic turbulence. Using multivariate models, we find that compliant portfolios do just as good as non-compliant portfolios. We conclude that financial compliance might be rewarding for Shariah-abiding investors who are interested in U.S. REIT sector. In separate tests, we show that leverage and REITs’ performance are independent. Yet, we show anecdotal evidence that outperformance of compliant portfolios may imply efficiency of an underlying conservative, but not necessarily religious, strategy that avoids the excessive use of debt, interest, and cash.
Keywords: Investment and Portfolio Management, Socially Responsible Investing, Islamic Finance.
JEL Classification: G12, G20, G23
Suggested Citation: Suggested Citation