The Impact of Islamic Portfolio on Risk and Return
DOI:
https://doi.org/10.14738/abr.911.11170Abstract
The purpose of this study is to investigate the comparative impact of conventional and Islamic bonds over returns. It provides useful insights to investors to diversify investment by lowering the risk to the optimum level. This study examines the impact of the conventional and Islamic portfolios on returns through simple OLS regression, suggesting that Sukuk returns are positive and significant. Simultaneously, conventional bonds show a negative trend, but in the long run, the returns are significant. It indicates that the market is volatile due to macroeconomic factors that can reduce risks through portfolio diversification. Thus, this research suggests that investment can be secured by taking a rational portfolio decision that confirms robustness. Therefore, it is a good opportunity for the investors to get high margins over the investment tenure.
References
Abdel-Khaleq, A. H., & Richardson, C. F. (2006). New horizons for Islamic securities: emerging trends in Sukuk offerings. Chi. J. Int'l L.
Adam, N. J., & Thomas, A. (2004). Islamic bonds: Your guide to issuing, structuring, and investing in Sukuk. Euromoney Books.
Adekunle, Saheed, S., Masih, & Mansur. (2017). Assessing the viability of Sukuk for portfolio diversification using MS-DCC-GARCH. Munich Personal RePEc Archive.
Ahmad, W., & Radzi, R. M. (2011). Sustainability of Sukuk and Conventional Bond during Financial Crisis: Malaysia’s Capital Market. Global Economy and Finance Journal, 33-45.
Aldhaheri, M. H. (2017). The Relative Risk Performance of the Islamic Sukuks over the Conventional Bonds: New Evidence from Value at Risk Approach. United Arab Emirates University.
Anas, A. B. (2014). Portfolio Diversification Strategy and the Impacts on the Middle East Real Estate Investment Decision. International Journal of Economics and Finance, (6)2.
Andel-Khaleq, A. H., & Richardson, C. F. (2006). New horizons for Islamic securities: emerging trends in Sukuk offerings. Chi. J Int'l L, 7:409.
Antretter, T., Siréna, C., Grichnik, D., & Wincent, J. (2020). Should business angels diversify their investment portfolios to achieve higher performance? The role of knowledge access through co-investment networks. Journal of Business Venturing, 35.
Ariff, M., & Safari, M. (2012). Are Sukuk Securities the Same as Conventional Bonds? Afro Eurasian Studies, 101 -
Arize, A. C., Guo, T., Malindretos, J., Verzani, L., & Ndu, I. (2019). Financial Advice and Portfolio Diversification. Accounting and Finance Research.
Arize, C. A., & Malindretos, J. (2019). Financial Advice and Portfolio Diversification. Accounting and Finance Research, 8(9).
Ayesha, S., Fatima, S. A., & Krishnadas, L. (2020). Impact of loan portfolio diversification on central bank performance and risk mitigation. International Journal of Management, 11(5), 644-661.
Balling, M., Bourgeois, C., Lierman, F., & Vermaut, J. (2016). Fin-tech and the Future of Retail Banking. Report on a conference jointly organized by the Belgian Financial Forum, SUERF, and Eggsplore Auditorium National Bank of Belgium Brussels.
Barqawi, O. A. (2018). The risk of Sukuk (Islamic bonds) and conventional bonds: a comparative study. Journal of Economic-Administrative and Legal Sciences, 2522-3372.
Bidabad, B., Hassan, A., Ali, M. S., & Allahyarifard, M. (2011). Interest- Free Bonds and Central Banking Monetary Instruments. International Journal of Economics and Finance, 234-241.
Butt, S., & Khan, Z. A. (2019). Fin-tech in Pakistan: a qualitative study of bank’s strategic planning for an investment in the fin-tech company and its challenges. Independent Journal of Management and Production.
Cakir, S., & Raei, F. (2007). Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk? International Monetary Fund.
Chapra, M. U. (2008). The Global Financial Crisis: Can Islamic Finance Help Minimize the Severity and Frequency of Such A Crisis in the Future? Islamic Development Bank.
Demirer, R., Balcilar, M., & Cerci, G. (2016). Is there a role for Islamic bonds in global diversification strategies? Managerial Finance, Emerald Group Publishing, 42(7), 656-679.
Dyk, F. v. (2008). Portfolio Diversification Index as a measure to improve investment portfolio performance.
Dyk, F. V., Vuuren, G. V., & Styger, P. (2012). Improved investment performance using the portfolio diversification index. Journal of Economic and Financial Science, 5(1),153-174.
Edwards, S. (2017). The Importance of Portfolio Diversification for Your Investments. Digital Marketing Strategist.
Giofre, M. (2017). Financial education, investor protection, and international portfolio diversiÖcation. Journal of international money and finance.
Goetzmann, W., & Kumar, A. (2001). Equity Portfolio Diversification. NBER Working Paper Series, (8686).
Guiso, L., & Jappelli, T. (2008). Financial Literacy and Portfolio Diversification. EUI Working Paper.
Hagin, R. L. (2003). Investment Management.
Hayat, R., & Kraeussl, R. (2011). Risk and return characteristics of Islamic equity funds. Emerging Markets Review, 189-203.
Hesse, H., Jobst, A. A., & Solé, J. (2008). Trends and Challenges in Islamic Finance. World Economics, 175-193.
Hoang, T. H., Lean, H. H., & Wong, W.-K. (2011). Is Gold Good for Portfolio Diversification? A Stochastic Dominance Analysis of the Paris Stock Exchange. Multinational Finance Society, 26-29.
Ibrahim, M. (2015). Analysis of Portfolio Diversification and Risk Management of Livestock Assets in the Borana Pastoral System of Southern Ethiopia.
Islamic Finance Sukuk. (2015). Islamic Finance Sukuk Definition. Retrieved from Investment and Finance: https://www.investment-and-finance.net/islamic-finance/tutorials/sukuk-definition.html Islamic.
Islamic Financial Services. (2017). Islamic Financial Services Industry Stability Report. Kuala Lumpur: IFSB.
Jabeen, Z. (2007). Significance of Sukuk Securitization For Banks Structuring for Risk Regulation and Pricing. Conference Proceedings.
Khoso, A. A., Kazi, A. S., Ahmedani, M. M., Ahmed, M., Ahmed, F., & Khoso, I. A. (2016). A comparative study between Sukuk bonds and conventional bonds in the Pakistan capital market. International Journal of Multidisciplinary Research and Development, 06-11.
Kimeu, F. M. (2014). The effect of portfolio composition on the financial performance of investment companies listed in the Nairobi securities exchange.
Kota, S., & Senthilkumar, S. (2019). Investment diversification factors on portfolio decisions with reference to RRT inducement. International Journal of Marketing and Management Research, 10(6).
Koumou, G. B. (2020). Diversification and Portfolio Theory: A Review. Financial Markets and Portfolio Management, 34, 267-312.
Laure, M. A. (2019). The Future of Fintech. Research-Technology Management, 59-63.
Lee, K. h., & Ullah, S. (2008). Inter-bank cooperation between Islamic and conventional–the case of Pakistan. International Review of Business Research Papers, 1-26.
Levišauskait, K. (2010). Investment Analysis and Portfolio Management. LEONARDO DA VINCI Innovation.
Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. The Review of Economics and Statistics, 13-37.
Lyandresy, E., Marchicaz, M.-T., Michaelyx, R., & Mura, R. (2015). Owners' portfolio diversification and firm investment: Evidence from private and public firms.
Maeda, M. (2009). The Complete Guide to Investing in Bonds and Bond Funds: How to Earn High Rates of Return Safely. Florida: Atlantic Publishing Group.
Makau, M. M., & Ambrose, D. (2017). The Impact of Portfolio Diversification on Financial Performance of Investment Firms Listed In Nairobi Securities Exchange, Kenya: Empirical Review. International Journal of Management and Commerce Innovations, 5(2),177-187.
Marekera, S., & Macready, T. (2016). Impact Investing in the Context of a Diversified Portfolio. Investments & Wealth Monitor.
Markowitz, H. (1952). Review Article on Modern Finance Portfolio Theory. Journal of Finance, 7(1), 77-90.
Markowitz, H. M. (1959). Portfolio Selection Efficient Diversification of Investments. New York.
McMillen, M. (2012). Contractual Enforceability Issues: Sukuk and Capital Markets Development. Chi. J Int'l L.
Merton, R. C. (1969). Lifetime Portfolio Selection Under Uncertainty: The continuous-Time Case. The Review of Economics and Statistics, 51(3), 247-257.
Mobin, M. A., & Ahmad, A. U. (2014). Liquidity Management of Islamic Banks: The Evidence from Malaysian Practice. The Global Journal of Finance and Economics, 175-186.
Mohamad, A. A., Mohamad, M. T., & Samsudin, M. L. (2013). How Islamic Banks of Malaysia Managing Liquidity? An Emphasis on Confronting Economic Cycles. International Journal of Business and Social Science, 253-263.
Mohamad, S., & Yusoff, M. F. (2008). Key Shari[ah Rulings on Sukuk Issuance in the Malaysian Islamic Capital Market. In S. Ali, Islamic Capital Markets: Products, Regulations, and Development. Islamic Development Bank, 55-
Mouna, A., & Jarboui, A. (2015). Financial literacy and portfolio diversification: an observation from the Tunisian stock market. International Journal of Bank Marketing, Vol. 33 pp. 808 - 822.
Nakaso, H. (2016). FinTech - its impacts on finance, economies, and central banking. Deputy Governor of the bank of japan.
Nedeltcheva, G. N., & Ragsdell, K. (2011). A New Approach to Optimal Investment Portfolio Management. International Journal of Global Management Studies, 2(2).
Nisar, S. (2007). Islamic Bonds (Sukuk): its introduction and application.
Norzaidi, M. D., & Chong, S. C. (2008). Portfolio diversification: the role of information technology in future investment decision-making. Int. J. Electronic Finance, 2(4),451–468.
Omisore, I., Yusuf, M., & Christopher, N. I. (2012). The modern portfolio theory as an investment decision tool. Journal of Accounting and Taxation, 4(2),19-28.
Pickard, A. J. (2013). Research methods in information.
Pola, G. (2014). Is Your portfolio effectively diversified? Various perspectives on portfolio diversification. Amundi Asset Management, 40.
Presnal, A., Godani, N., & Comeau, N. (2013). Trading, Investment &Portfolio Management. Interactive Qualifying Project Report.
Pula, J. S., Berisha, G., & Ahmeti, S. (2012). The Impact of Portfolio Diversification in the Performance and the Risk of Investments of Kosovo Pension Savings Trust. Journal of Business and Economics, 3(3), 198-211.
Rahmawati, D. I., Qudus, S. N., & Pertiwi, R. D. (2020). Analysis of the Impact of using Syariah Bonds (Sukuk) and Conventional Bonds on Stock Returns for Investors in Indonesia: Study of Manufacturing Companies Listed on the IDX in 2015-2017. Journal of Physics: Conference Series.
Raposo, P., Chahed, E., Malaterre, N., & Gautier, P. (2014). Tech Disruption In Retail Banking: France's Universal Banking Model Presents a Risk.
Reilly, F., & Brown, K. (2002). Investment Analysis&Portfolio Management.
Rizvi, S. K., Naqvi, B., & Tanveer, F. (2018). Is Pakistan Ready to Embrace Fintech Innovation? The Lahore Journal of Economics.
Rudin, A. M., & Morgan, J. (2006). A Portfolio Diversification Index. The Journal of Portfolio Management, 32(2), 81-89.
Saripudin, K. N., Mohamad, S., Razif, N. F., Abdullah, L. H., & Rahman, N. N. (2012). Case Study on Sukuk Musharakah Issued in Malaysia . Middle-East Journal of Scientific Research , 168-175.
Shanmugam, B., & Zahari, Z. R. (2009). A Primer on Islamic Finance. Research Foundation of CFA Institute.
Shari, A., Mahat, F., & Dahir, A. M. (2019). Issues and Trends of Portfolio Diversification. International Journal of Academic Research in Business and Social Sciences, 9(11), 1237–1243.
Sherif, M., & Erkol, C. T. (2017). Sukuk and conventional bonds: shareholder wealth perspective. Journal of Islamic Accounting and Business Research, 347-374.
Simkowitz, M. A. (1972). Modern Financial Theory, Impact on Analysis of Strategy. Business Horizons, 15(1), 89-
Theron, L., & Vuuren, G. V. (2018). The maximum diversification investment strategy: A portfolio performance comparison. Cogent Economics & Finance, 6(1).
Viceira, L. M., & Wang, Z. K. (2018). Global Portfolio Diversification for Long-Horizon Investors.
Woerheide, W., & Persson, D. (1993). An Index of Portfolio Diversification. Financial Services Review, 2(2), 73-85.
Worthington, A., & Higgs, H. (2004). Art as an Investment: Risk, Return and Portfolio Diversification in Major Painting Markets. Accounting and Finance, 44(2), 257-272.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 Scholar Maryiam Farid, Dr. Amjad Ali, Dr. Wajid Alim
This work is licensed under a Creative Commons Attribution 4.0 International License.
