Malaysia, a shari'ah-consistent investing incubator

Abstract

This paper investigates if there is a cost to Islamic investing by analyzing the difference in returns and risk exposure between Malaysian Shariah-Consistent (S) and Non-Shariah-Consistent (NS) Stocks using data over 1999-2006 period. Our findings indicate that Shariah-Consistent Stocks returns approximately the same as Non-Shariah-Consistent (NS) Stocks. While we cannot find any difference in fundamental exposure between the two categories of stocks, we uncover significant differences in the way local and global risk factors affect each category of stocks. We find that gains from including stocks outweigh NS stocks over all risk-return ranges. We find that S stocks are influenced more by local and global factors than NS stocks.