Macro-financial regimes and performance of Shariah-compliant equity portfolios

Kris Boudt, Muhammad Wajid Raza, Dawood Ashraf

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This study proposes the Markov Regime Driven Style allocation (MRDS) strategy for Shariah-compliant portfolio construction, a forward-looking methodology that merges economic forecasting with Shariah-compliant investment principles. By using Shariah-compliant equities from the S&P 500 universe over the period 1986–2016, we find that a Shariah-compliant investor can achieve stable performance by dynamically allocating across investment styles determined from the macro-financial information, as compared with various single style strategies. The MRDS improves both the level and stability of relative performance. This strategy also successfully mitigates risk by reducing volatility, value-at-risk, and portfolio drawdowns.

Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalJournal of International Financial Markets, Institutions and Money
DOIs
Publication statusAccepted/In press - 22 Jan 2019

Fingerprint

Equity
Methodology
Economic forecasting
Relative performance
Value at risk
Financial information
Investment style
Portfolio construction
Investors

Keywords

  • Equal-weighting
  • Fundamental-weighting
  • Low-risk weighting
  • Market capitalization
  • Shariah-compliant investing

Cite this

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Macro-financial regimes and performance of Shariah-compliant equity portfolios. / Boudt, Kris; Raza, Muhammad Wajid; Ashraf, Dawood.

In: Journal of International Financial Markets, Institutions and Money, 22.01.2019, p. 1-15.

Research output: Contribution to JournalArticleAcademicpeer-review

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