Are Islamic Equity Indices More Efficient Than Their Conventional Counterparts? Evidence from Major Global Index Families

Abstract

The Islamic financial institutions are gaining popularity in recent years. Although this popularity and increasing number of Islamic financial organizations, the Pragmatic research on this topic is less. This pragmatic study will find out the competency of Islamic indices using various statistical techniques. This study also intend to find out the if there is chances to invest in multiple businesses within the Shariah-obedient indices and also check the connection between traditional indices and Shariah-obedient using correlation technique. The sample will include four indices, two of them will comprise of Islamic Shariah-obedient indices and the other two comprise of traditional one. This study disclose that the in competencies intensity of Islamic indices and traditional are same while the indices of MSCI and FTSE is less incompetent. In order to check the relationship between Islamic indices, the correlation technique is used  which disclose that Islamic indices of Dow Jones and Standard & poor have negative correlation value with their benchmark, which means that the favorable situation to invest in multiple businesses exist that analysis interpreted as  if one indices are not getting profit or facing loss in business then at the same time other indices are gaining profit which thus lower the overall risk of the portfolio and hence provide the favorable circumstances to invest.

Key words: Islamic finance, indices, diversification, co integration, efficiency, variance ratios.