Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios?

Dawood Ashraf, Karl Felixson, Mohsin Khawaja, Syed Mujahid Hussain

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

The Islamic equity screening standards specifically forbid investment in equities of companies with high financial leverage and a low fraction of investment in real assets. We investigate how these constraints on financial leverage and higher investment in real assets (operating leverage) affect the performance of Islamic equity portfolios (IEPs). The empirical findings suggest that investors sacrifice potential returns by holding constrained portfolios but also avoid some of the risk. The exact effect on portfolio performance is largely dependent of the actual screening standard used, either book-value based (MSCI) or market-value based (AAOIFI). These results have clear implications for both investors and policy makers.

Original languageEnglish
Pages (from-to)171-182
Number of pages12
JournalPacific Basin Finance Journal
Volume42
DOIs
Publication statusPublished - Apr 1 2017

Fingerprint

Financial leverage
Equity
Operating leverage
Investors
Screening
Assets
Book value
Market value
Politicians
Portfolio performance

Keywords

  • Investment in real assets
  • Islamic equity investments
  • Leverage
  • Portfolio management

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios? / Ashraf, Dawood; Felixson, Karl; Khawaja, Mohsin; Hussain, Syed Mujahid.

In: Pacific Basin Finance Journal, Vol. 42, 01.04.2017, p. 171-182.

Research output: Contribution to journalArticle

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