The Volatility of Islamic and Conventional Stock Prices: Is There a Difference?

Abstract

This study examines the characteristics of the volatility of the Islamic index versus the conventional index of the financial market. Daily data for the Dow Jones Islamic Index (DJIM) and the conventional DJ index (DJI) were used from January 2014 to December 2018. The results of the t-test to verify the difference of the average return between both indicators showed that there is no significant difference in the average between the Islamic and conventional index. The results of the EGARCH model estimate showed that there was no leverage risk in both indicators. The risk-adjusted performance of the Islamic index versus its conventional index using the Sharp Variations and CAPM pricing model, showed that there was no difference between performance between the two indices in the rate of return risk. Muslim investors can therefore pursue negative equity investments in line with their religious beliefs without sacrificing financial performance