Performance of Sharrah compliant equity investments in comparison with their conventional counterparts : evidence from Pakistan

Abstract EN

This paper investigates the effects of Sharï‘ah screening criteria on the performance of an investment portfolio by employing various absolute and risk-adjusted performance measures and Johansen’s co-integration test on hypothetical investment portfolios, containing equities included in KM1-30, KSE-100, and KSE-A11 indices, respectively.

Empirical results suggest that Sharï‘ah screening criteria do not affect the absolute and the risk-adjusted performance of an Islàmic investment portfoho, compared to its conventional counterparts; furthermore, index prices of the Shar!‘ah compliant equities’ index (KMI-30) are not co-integrated with that of conventional equities’ index (KSE-100), which implies that both of the indices’ prices have been changing independently.

Therefore, it is recommended that investment portfolios can better be diversified for their enhanced risk to return performance by adding Shari‘ah compliant equities into them.