Two Essays in Islamic Finance and Investment
type: CreativeWork
description: The main purpose of this dissertation is to lessen the gap in the Islamic finance and investment literature by providing new answers to the most vital question raised in that literature: Is the adherence to the Shariah law associated with at any cost? The first chapter provides a primer on Islamic finance. It discusses several restrictions and necessary adaptations that must be made to have a Shariah-compliant product. The takeaway is that Shariah law mandates is related to fundamentals and, thus has a direct effect on the risk-return profile of all sorts of different products. This is referred to as the “Islamic-effect.” The second chapter investigates that Islamic-effect in a cross-sectional stock return context. This is done in two steps. First, looking at differences in stock returns between Islamic and conventional firms in Saudi Arabia during the period from January 2003 to April 2011. Results indicate that there is a negative relationship between Saudi Islamic firms and average returns. This is referred to as the “negative Islamic-effect.” Second, examine whether that negative Islamic-effect is considered a common, systematic, and undiversified risk factor that affects cross-sectional expected stock returns. Time-series regressions results indicate that the Islamic risk factor (CMI) does indeed capture strong common variation in Saudi stock returns regardless what is included in the model. Also, findings suggest that using a four-factor model that controls for the Islamic-effect is more appropriate than using a single- or a three-factor model in Islamic finance applications that require estimates of expected stock returns. The third chapter investigates the Islamic-effect in a mutual fund context. A unique sample of 143 Saudi mutual funds (96-Islamic and 47-conventional) is used to assess the performance and riskiness of Saudi Islamic funds relative to Saudi conventional funds and relative to different Islamic and conventional indices for the period from July…
abstract: The main purpose of this dissertation is to lessen the gap in the Islamic finance and investment literature by providing new answers to the most vital question raised in that literature: Is the adherence to the Shariah law associated with at any cost? The first chapter provides a primer on Islamic finance. It discusses several restrictions and necessary adaptations that must be made to have a Shariah-compliant product. The takeaway is that Shariah law mandates is related to fundamentals and, thus has a direct effect on the risk-return profile of all sorts of different products. This is referred to as the “Islamic-effect.” The second chapter investigates that Islamic-effect in a cross-sectional stock return context. This is done in two steps. First, looking at differences in stock returns between Islamic and conventional firms in Saudi Arabia during the period from January 2003 to April 2011. Results indicate that there is a negative relationship between Saudi Islamic firms and average returns. This is referred to as the “negative Islamic-effect.” Second, examine whether that negative Islamic-effect is considered a common, systematic, and undiversified risk factor that affects cross-sectional expected stock returns. Time-series regressions results indicate that the Islamic risk factor (CMI) does indeed capture strong common variation in Saudi stock returns regardless what is included in the model. Also, findings suggest that using a four-factor model that controls for the Islamic-effect is more appropriate than using a single- or a three-factor model in Islamic finance applications that require estimates of expected stock returns. The third chapter investigates the Islamic-effect in a mutual fund context. A unique sample of 143 Saudi mutual funds (96-Islamic and 47-conventional) is used to assess the performance and riskiness of Saudi Islamic funds relative to Saudi conventional funds and relative to different Islamic and conventional indices for the period from July…
author: Merdad, Hesham J
keywords: Islamic finance, Islamic risk factor, Islamic-effect, Islamic mutual funds, risk-return profile, Saudi Arabia, Corporate Finance, Finance and Financial Management
date published: 2012-05-18T07:00:00Z
date modified: 2026-07-24T05:29:24Z
provider: University of New Orleans
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of New Orleans