Faith-based norms and portfolio performance: Evidence from India

This paper investigates the performance of Shariah and conventional stock portfolios in India during the period 2001–2017 by using asset pricing models. We first examine the influence of Shariah investment principles on the stock returns' cross-section. Then we assess the overall risk of Sharia...

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Bibliographic Details
Published in:Global finance journal 2019-08, Vol.41, p.79-89
Main Authors: Dharani, M., Hassan, M. Kabir, Paltrinieri, Andrea
Format: Article
Language:English
Subjects:
Asset pricing
India
Islamic finance
Portfolio management
Shariah portfolio
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Summary:This paper investigates the performance of Shariah and conventional stock portfolios in India during the period 2001–2017 by using asset pricing models. We first examine the influence of Shariah investment principles on the stock returns' cross-section. Then we assess the overall risk of Shariah and conventional portfolios, focusing also on financial crises. We provide evidence of a positive Shariah effect on stock returns in India. Therefore, Shariah stocks offer higher returns than non-Shariah stocks. We also find that Shariah portfolios have lower risk than unconstrained conventional ones. Overall our results reveal that both portfolios have similar performance, but the Shariah portfolio has a lower level of risk. Finally, the results clearly indicate that the volatility of the Shariah portfolio is lower during the crisis period. •We examine the performance of Shariah and conventional stock portfolios in India.•We provide evidence of a positive Shariah effect on stock returns in India.•Shariah stocks offer higher returns than non-Shariah stocks.•Shariah portfolios have lower risk than unconstrained conventional ones.•The volatility of the Shariah portfolio is lower during the crisis period.
ISSN:1044-0283
1873-5665
DOI:10.1016/j.gfj.2019.02.001