Islamic Equity Investments and the COVID-19 Pandemic

33 Pages Posted: 28 May 2020 Last revised: 3 Dec 2021

See all articles by Dawood Ashraf

Dawood Ashraf

Islamic Development Bank Institute

Muhammad Suhail Rizwan

National University of Sciences and Technology (NUST)

Ghufran Ahmad

National University of Sciences and Technology (NUST)

Date Written: December 3, 2021

Abstract

Global equity markets experienced a substantial downfall with the outbreak of the COVID-19 pandemic. At the peak of the downfall, S&P Dow Jones reported that their Islamic equity indexes (IEIs) continued to outperform their conventional counterparts in the first quarter of 2020. The equity markets have since recovered and have touched historical peaks. This study empirically investigates how Islamic equity investment weathered the troughs and peaks of equity markets during the COVID-19 pandemic by using a sample consisting of global, US, European, and Asian IEIs, and daily data for the period starting from 01 May 2018 to 30 April 2021. During the COVID19period, we find that IEIs exhibit significant excess returns on a nominal and risk-adjusted basis. We find evidence to suggest that IEIs do provide resistance/hedging during extreme market downfalls, albeit only those adhering to the market-value-of-equity (MVE) approach for Shariah screening. As a caution to investors, the hedging benefit associated with IEIs is observed only when there is a big swing in the market.

Keywords: COVID-19, Islamic equity investments, hedging, Down market beta, Logistic smooth transition autoregressive model

Suggested Citation

Ashraf, Dawood and Rizwan, Muhammad Suhail and Ahmad, Ghufran, Islamic Equity Investments and the COVID-19 Pandemic (December 3, 2021). Available at SSRN: https://ssrn.com/abstract=3611898 or http://dx.doi.org/10.2139/ssrn.3611898

Dawood Ashraf

Islamic Development Bank Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Muhammad Suhail Rizwan (Contact Author)

National University of Sciences and Technology (NUST) ( email )

Pakistan

Ghufran Ahmad

National University of Sciences and Technology (NUST) ( email )

Pakistan

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