This study assesses the extent of correlation between ethical investment and Shari’ah-compliant investments in different economic situations. By employing a battery of time series investigation techniques, this study aims to determine if the nature of the relationship between the funds changes in the non-crisis period and during the 2007 crisis period for three developed markets and major financial centers i.e. US, UK and Japan. By estimating the short- and long-term dynamics between the ethical and Islamic indexes, and the extent of cointegration between the two funds, our analysis aims to help fund managers as well as investors in the composition of their portfolio by answering the following question: should investors chose one of the two funds or can they further diversify by investing in a fund of funds containing both ethical and Islamic funds for better risk to return performance? Our findings show that ethical and Islamic funds in the three major financial centers have a significantly different behavior in the short run as well as in the long run. This study shows that in the US as well as in the UK and Japan, there are potential diversification benefits for active investors in the short run, as well as for passive investors in the long run before the crisis in the US and in both sub periods in Japan and UK.

(2010). Ethical investment and Shari'ah-compliant investment compared: can investors benefit from diversification? [journal article - articolo]. In SAVINGS AND DEVELOPMENT. Retrieved from http://hdl.handle.net/10446/27473

Ethical investment and Shari'ah-compliant investment compared: can investors benefit from diversification?

2010-01-01

Abstract

This study assesses the extent of correlation between ethical investment and Shari’ah-compliant investments in different economic situations. By employing a battery of time series investigation techniques, this study aims to determine if the nature of the relationship between the funds changes in the non-crisis period and during the 2007 crisis period for three developed markets and major financial centers i.e. US, UK and Japan. By estimating the short- and long-term dynamics between the ethical and Islamic indexes, and the extent of cointegration between the two funds, our analysis aims to help fund managers as well as investors in the composition of their portfolio by answering the following question: should investors chose one of the two funds or can they further diversify by investing in a fund of funds containing both ethical and Islamic funds for better risk to return performance? Our findings show that ethical and Islamic funds in the three major financial centers have a significantly different behavior in the short run as well as in the long run. This study shows that in the US as well as in the UK and Japan, there are potential diversification benefits for active investors in the short run, as well as for passive investors in the long run before the crisis in the US and in both sub periods in Japan and UK.
articolo
2010
L’étude vise à analyser de façon robuste la corrélation entre le rendement des investissements éthiques et des investissements islamiques conformes à la shari’ah durant deux situations économiques différentes dans les grands centres financiers i.e. U.S., U.K., et le Japon et ceci en utilisant une batterie de tests en séries temporelles. En évaluant les relations à court et à long terme entre les indices éthiques et islamiques et en analysant l’étendue de la cointégration entre les deux fonds, l’étude vise également à aider les gérants de portefeuille ainsi que les investisseurs à apporter une réponse à la question suivante: Doit-on choisir entre les deux fonds islamiques et éthiques ou peut-on diversifier davantage en formant un portefeuille contenant les deux fonds ensemble afin d’atteindre une meilleure performance en termes de rendement- risque? Cette étude montre des différences significatives dans le comportement des deux fonds sur les différentes sous périodes et sur les différents marchés étudiés. Sur le marché américain, Japonais et Anglais, il y a eu des possibilités de gains de diversification à court terme. Un gérant de portefeuille actif bénéficierait en effet des différences dans le comportement de court terme des deux fonds alors qu’à long terme, aux USA uniquement avant la crise, et au Royaume Uni et au Japon sur les deux sous périodes analysées, on pouvait réduire le risque grâce à la diversification.
Yusof, ROSYLIN MOHD; Bahlous, Mejda; Kassim, SALINA H.
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