Do Islamic fundamental weighted indices outperform their conventional counterparts? An empirical investigation during the crises in the MENA region

This paper investigates the performance of Islamic fundamental weighted (FW) portfolios compared to that of non-Islamic counterparts, to examine whether Shari'ah-compliant stocks can protect investors during crises in the Middle East and North Africa region. Portfolios' performance is assessed using several risk-adjusted performance measures including more robust measures in the context of recently developed multi-factor models. The study's findings suggest that the performance of Islamic and non-Islamic FW portfolios depends on the performance measures used and on the periods under analysis. Both Islamic and non-Islamic FW portfolios underperform against the cap-weighted benchmark. Furthermore, the Islamic portfolios underperform compared to their non-Islamic counterparts during the period of the global financial crisis, while they perform similarly to their non-Islamic counterparts during the Arab Spring period. Based on these results, we conclude that Islamic FW portfolios do not seem to protect investors from losses during crises.This work was carried out within the funding with COMPETE reference no POCI-01-0145-FEDER006683, with the FCT/MEC's (Fundacaopara a Ciencia e a Tecnologia, I.P.) financial support through national funding and by the ERDF through the Operational Programme on "Competitiveness and Internationalization COMPETE 2020 under the PT2020 Partnership Agreement"