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How Can Responsible Investors Benefit from Islamic Criteria?

39 Pages Posted: 17 Feb 2017 Last revised: 1 May 2017

Christian Gueckel

SEDCO Capital

Date Written: February 22, 2017

Abstract

This paper compares the risk-adjusted performance of responsible investment, Islamic investment and unconstrained portfolios across US, Europe and Asian equity markets. We provide evidence that negative screening accompanied with an Islamic investment philosophy outperforms responsible investment and unconstrained approaches. This paper supports earlier empirical conclusions that responsible portfolios based on negative sectors screens underperform an otherwise unconstrained portfolio. Further evidence is provided that Islamic investment approaches outperform unconstrained investment portfolios particularly during crisis periods. We validate possible reasons for the outperformance of Islamic constrained versus unconstrained portfolios and test robustness: We show that the Islamic balance sheet ratios and the exclusion of financials drive performance. The biases to growth and quality factors contribute to the outperformance of Islamic portfolios. The study provides additional insights linked to regional performance characteristics. As a conclusion, Islamic criteria have generated value not just for responsible but also for unconstrained investors.

Keywords: Style Analysis, Ethical Investments, Socially Responsible Investments, Islamic Investments, Quality Investing, Value, Market efficiency, Leverage

JEL Classification: G11, G12

Suggested Citation

Gueckel, Christian, How Can Responsible Investors Benefit from Islamic Criteria? (February 22, 2017). Available at SSRN: https://ssrn.com/abstract=2918849 or http://dx.doi.org/10.2139/ssrn.2918849

Christian Gueckel (Contact Author)

SEDCO Capital ( email )

Zurich
Switzerland

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