Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC

There is this argument that Shari’ah compliant portfolios are at a disadvantage in terms of portfolio diversification given that the exclusion of ‘sin stocks’ shrinks the Islamic investor’s investment universe. This paper investigates first, whether there is empirical evidence to substantiate such...

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Main Authors:	Mustaffa Kamil, Nazrol Kamil, Bacha, Obiyathulla Ismath, Masih, Mansur
Format:	Article
Language:	English
Published:	Malaysian Finance Association 2012
Subjects:	HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation
Online Access:	http://irep.iium.edu.my/62234/ http://irep.iium.edu.my/62234/ http://irep.iium.edu.my/62234/1/CMR-Vol-20-Paper-3-2012.pdf

id	iium-62234
recordtype	eprints
spelling	iium-622342018-02-28T08:43:13Z http://irep.iium.edu.my/62234/ Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Masih, Mansur HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation There is this argument that Shari’ah compliant portfolios are at a disadvantage in terms of portfolio diversification given that the exclusion of ‘sin stocks’ shrinks the Islamic investor’s investment universe. This paper investigates first, whether there is empirical evidence to substantiate such a claim, and second, can something be done to alleviate this disadvantage. Our results show that there is statistical evidence that Islamic portfolios are deprived of some benefits of diversification, at the sector level. However, the empirical evidence does not permit us to generalise such a finding at the specific stock level. By analysing the temporal characteristics of correlations using MGARCH-DCC, we argue that Islamic portfolios can minimise loss of diversification benefit by adopting appropriate portfolio allocation strategies. In particular, market sentiment and commodity prices are two key variables that can drive portfolio allocation switching decisions. In short, while there is some evidence that investors of Shari’ah compliant portfolios are denied additional benefits of diversification, there are arguably avenues to mitigate such a disadvantage. Malaysian Finance Association 2012 Article PeerReviewed application/pdf en http://irep.iium.edu.my/62234/1/CMR-Vol-20-Paper-3-2012.pdf Mustaffa Kamil, Nazrol Kamil and Bacha, Obiyathulla Ismath and Masih, Mansur (2012) Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC. Capital Markets Review, 20. pp. 43-64. ISSN 1823-4445 http://www.mfa.com.my/previous-issues/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation
spellingShingle	HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Masih, Mansur Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
description	There is this argument that Shari’ah compliant portfolios are at a disadvantage in terms of portfolio diversification given that the exclusion of ‘sin stocks’ shrinks the Islamic investor’s investment universe. This paper investigates first, whether there is empirical evidence to substantiate such a claim, and second, can something be done to alleviate this disadvantage. Our results show that there is statistical evidence that Islamic portfolios are deprived of some benefits of diversification, at the sector level. However, the empirical evidence does not permit us to generalise such a finding at the specific stock level. By analysing the temporal characteristics of correlations using MGARCH-DCC, we argue that Islamic portfolios can minimise loss of diversification benefit by adopting appropriate portfolio allocation strategies. In particular, market sentiment and commodity prices are two key variables that can drive portfolio allocation switching decisions. In short, while there is some evidence that investors of Shari’ah compliant portfolios are denied additional benefits of diversification, there are arguably avenues to mitigate such a disadvantage.
format	Article
author	Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Masih, Mansur
author_facet	Mustaffa Kamil, Nazrol Kamil Bacha, Obiyathulla Ismath Masih, Mansur
author_sort	Mustaffa Kamil, Nazrol Kamil
title	Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
title_short	Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
title_full	Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
title_fullStr	Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
title_full_unstemmed	Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC
title_sort	do 'sin stocks' deprive islamic stock portfolios of diversification? some insights from the use of mgarch-dcc
publisher	Malaysian Finance Association
publishDate	2012
url	http://irep.iium.edu.my/62234/ http://irep.iium.edu.my/62234/ http://irep.iium.edu.my/62234/1/CMR-Vol-20-Paper-3-2012.pdf
first_indexed	2023-09-18T21:28:14Z
last_indexed	2023-09-18T21:28:14Z
_version_	1777412335981297664

Do 'Sin Stocks' deprive Islamic stock portfolios of diversification? Some insights from the Use of MGARCH-DCC

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