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Author 
6


name - Main Summary ± 3 Methodology - 4 Conclusion - 5





1



î The purpose of this study is to Model used:
examine the comparative î access to the Sharpe and î The paper concludes
performance of Dow Jones Islamic Treynor ratio; and access the that there is no
Indices and its seven indices vis-à- alpha of an index as compared to difference between
vis their non-Islamic counterparts the world benchmark from the Islamic and non-Islamic
using a variety of measures such as following equation (Jensen indices. The Dow Jones
Sharpe, Treynor, Jenson and [1968]): Islamic indices
Fama¶s selectivity, net selectivity outperform from 1996 to
and diversification. R -Rf = Į +ȕ (R -Rf ) +İ 2000 and underperform
it t i i,1,0 mt t it Elfakhani,
¶Faith-based î In addition, the study examines the from 2001 to 2005 their
S., Hassan,
Investing-The persistence of performance using î Also used Fama [1972]* conventional
irard, M. Kabir, &
Case of Dow Carhart (1997)# four factor pricing selectivity, net selectivity and counterparts. Overall,
E. and Sidani,
Jones Islamic models. Finally, this study use co- diversification. similar reward to risk and
M. Kabir Yusuf
Indexes, integration to examine how the diversification benefits
Hassan (2005)
http://www.fma. Islamic indices are related with their moftware: databased from Reuters exist for both Islamic and
(2005
org/SLC/Papers non-Islamic counterparts. and Datastream conventional indices.

/Faith- î Evidence from the study: î This paper also suggests
BasedEthicalInv ‡ Islamic indices return on average Methods & Data collection: that the behaviour of

esting.pdf , 4 7.04 percent per annum as î The sample period starts from Dow Jones Islamic

February 2009. compared to 5.34 percent for MSCI January 1996 and ends in Market Indices do not
 indices. Also, Islamic series are November 2005 (118 data differ from that of their



 less risky than MSCI indices points). It is further broken down



(average of 17.52 percent standard
deviation per annum versus 18 %
per annum).
‡ Islamic indices are somewhat
correlated with their peers (0.78),
but less correlated with the MSCI
AC World (average correlation of
0.69 with MSCI AC World) it
translates into a lower beta with the
world (0.78) as compared to MSCI
conventional
into two periods²i.e January
1996 to November 2000 (59 data
points and December 2000 to
November 2005 (59 data points).
î This study uses closing prices
and monthly returns on 7 Islamic
indices (Dow Islamic Canada,
Dow Islamic United Kingdom,
Dow Islamic United States, Dow
Islamic Asia Pacific Developed,
counterparts, with some
indices over-performing
their counterparts and
others under-performing
them. Overall, similar
reward to risk and
diversification benefits
exist for both indices.
 c
3 

indices (1.028). Dow Islamic Europe Developed, 
‡ Overall Sharpe and Treynor Dow Islamic Emerging Markets, 
ratios indicate that Islamic indices Dow Islamic World developed
outperform their non-Islamic peers. markets), 7 ³corresponding´ non-

More specifically, the Islamic Islamic indices (MSCI Canada, 
indices offer an average of 206 MSCI United Kingdom, MSCI 
basis point of excess performance United States, MSCI Asia MSCI 
as compared to MSCI indices. Europe Developed, MSCI 
Interestingly, Islamic indices are Emerging Markets, MSCI
less diversified as compared to developed markets), and 4 World

their peers²i.e., the cost of indices (MSCI AC World index, 
diversification is 31 basis points MSCI AC World Small Cap Index, 
above the average MSCI index. On MSCI AC World Value Index, and 
a diversification-adjusted basis, all MSCI AC World Index rowth 
Islamic indices over perform MSCI Index).
indices by 175 basis points over

the last 118 months. 


  

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6


Author 

Main Summary - 3 Methodology - 4 Conclusion - 5


name - 1 






î The objectives of this paper are to address
the Western ethical fund management
issues, which should shed some light on the
dilemmas facing Islamic investors. Criteria
for  and investment are then
considered, as well as whether prime
business activity should be a defining
characteristic of stock selection.
î The paper also discuss the implications of
company capital gearing or leverage for 
as well as investment specific issues such as
Software: na
the treatment of capital gains in Islam and
î Methods :
 the evaluation of the conduct market
Wilson, R. 
 participants.
(1997) 
 î This paper also survey the emerging


 markets in the Islamic world, as these are of
î Data collected
 obvious interest to Muslim investors wishing to
Keywords: broaden their portfolios.
Islamic î Islamic investment is often criticized as being
finance, too focused on short-term instruments such as
Ethical
 Longer-term participatory finance
investment with at least some of the characteristics of

 and  arrangements higher gains or losses, but the
can be best developed through investing in
quoted stock. This may involve both
investment in companies in Western markets
which have been screened using Islamic
ethical criteria, and portfolio investment in
Muslim countries which can contribute to their
economic development, while bringing
potentially attractive returns to the investors
themselves.
î The advantags of diversification are evident
from examining the performance of individual

The research address the issue
for Muslim
investors at present is whether to
invest in the equities currently on
offer or abstain. Viewed from this
perspective, the possibilities
offered by emerging markets
looks attractive, although for
many this will sensibly be viewed
as an addition to their investment
portfolios which also includes
exposure to major
Exploratory
study
western markets. Nevertheless,
diversification into such markets
can widen any
portfolio and overcome some of
from Datastream
the systematic risk in Western
International;
markets where stock prices often
Analyze by using
move up and down together.
figure and graph Taking on emerging market risk
introduces the possibility of
Islamic World is sufficiently
diverse to create portfolios which
are hedged to a considerable
degree.
Overall the emerging markets of
the Islamic World would appear
to offer worthwhile investment
opportunities for Muslim
investors.
 c
 

stock exchanges in the Islamic World. For 
example, Kuala Lumpur, despite the size of
the market, exhibits considerable volume and
price volatility. Malaysian share prices
performed extremely well in the early 1990s
with substantial capital gains, but the trend
for the last two years has been slightly
downward, although there have been
significant gains in recent months. Regional
diversification into other Muslim countries in
South East Asia is not an adequate way of
reducing risk. As Figure 2, showing
the performance of the Indonesian stock
over the last two years, demonstrates,
trends in Jakarta have tended to mirror
those in Kuala Lumpur, and more
detailed technical analysis can illustrate this
correlation.
 c
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Author name - 6


Main Summary - 3 Methodology - 4 Conclusion - 5



1 




î This research has at tempted to ex î The research concludes that con
tend the re sults of pre vious stud ies of ventional funds
the in vestment performance of socially appear to out perform SR
re sponsible mu tual funds by: funds in a larger number of
(1) examining three port folio per circumstances, SR fund per
formance measures; formance equals or ex ceeds con
(2) examining SR mutual fund Software : na ventional fund
³The per formance by investment strategy; Data source: /"" per formance in many
Performance of (3) examining SR fund per formance by 0 1
 2)
 important cases, including
socially port folio size and systematic risk; and Method: arguably the most
responsible (4) contrasting SR funds employing sam ple of 49 mu tual important situations.
mutual funds: inclusion screens against funds that do funds that claim to screen î The most interesting finding from
incorporating not employ such screens. their this study is that the aplication of Renneboog
socio-political î Overall, the study showed mixed Investments for cor sam ple of socially responsible , L., Horst,
oldreyer,
information in results. While average monthly returns porate performance with funds employing inclusion J.T., and
E., Ahmad,
portfolio favor conventional bond and balanced regard to social goals or screens outperformed the Zhang, C.
Parvez and
selection´, funds over their SR counterparts, SR policies, and we compare sample that did not employ such (2008)
Diltz, D.
J  funds the performance of these screen ing. This phenomenon .
(1999)
 3 (1), included in those tests represent only firms to random sam ples appears to be independent of the
23-36. 41 per cent of the SR funds in study of conventional mutual overall movement in the mar ket.
sample. Average monthly re turns by funds. urther research:
Keywords: nine size and sys tematic risk categories Model used: There is a need for fur ther
Investment show an +0" 
 research in the area. While the
performance; advantage in only one category, that of 2 "3 
 
 dissemination of firm sociopolitical
Socially large low-beta conventional funds. 413 

 in formation is improving, bet ter
responsible (Table 2). Among fund investment measures of cor porate social
+0" 
investment strategies, performance would enhance the
(SRI); Mutual
 5
Jensen¶s al pha and the Sharpe ratio ability of researchers to develop
funds results favor conventional funds, while  more precise estimates of the ef
 the Treynor ratio favors SR funds. (Table fect of a firm¶s social policies on its
3). Among the nine size and sys tematic market value. Bet ter metrics to
risk cate gories, Sharpe and Treynor ra measure port folio performance and
tios favor conventional funds (see Ta the effects of new information on
bles 5 and 6). In con trast, Jensen¶s al portfolio performance lie in the fu
pha¶s are higher for five of the nine size ture of fi nancial economics. As
and risk categories. (Table 4). more data become available for
While conventional funds tend to longer time periods for more SR


perform bet ter in more situations than
SR funds, SR funds still out perform
conventional funds in many instances.
Moreover, the most im portant category
in which a mean dif ference t sta tistic is
calculated, that of equity funds (Ta ble
1), the t statistic for the dif ference be
tween av erage monthly re turns to SR
funds and con ventional funds is -0.33,
which is statistically insignificant.



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mutual funds, more precise
estimates of per formance
dif ferences may be calculated.
Other potentially interesting com
parisons to conventional funds may
be ana lyzed, such as the study of
management fees, port folio turn
over, performance bench marking
during up and down mar kets,
trends in sales vol ume, and more
de tailed analy ses of specific
methods of selecting socially
responsible port folios.