TY - JOUR
T1 - Macro-financial regimes and performance of Shariah-compliant equity portfolios
AU - Boudt, Kris
AU - Raza, Muhammad Wajid
AU - Ashraf, Dawood
PY - 2019/5
Y1 - 2019/5
N2 - 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.
AB - 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.
KW - Equal-weighting
KW - Fundamental-weighting
KW - Low-risk weighting
KW - Market capitalization
KW - Shariah-compliant investing
UR - https://doi.org/10.1016/j.intfin.2019.01.001
UR - http://www.scopus.com/inward/record.url?scp=85061055588&partnerID=8YFLogxK
U2 - 10.1016/j.intfin.2019.01.001
DO - 10.1016/j.intfin.2019.01.001
M3 - Article
VL - 60
SP - 252
EP - 266
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
SN - 1042-4431
ER -