nep-isf New Economics Papers
on Islamic Finance
Issue of 2018‒05‒28
two papers chosen by
Halimatun Aris

  1. Does the Application of Smart Beta Strategies Enhance Portfolio Performance? The Case of Islamic Equity Investments By Raza , Muhammad Wajid; Ashraf, Dawood
  2. The Interlinkage between Social Exclusion and Financial Inclusion: Evidence from Pakistan By Shirazi, Nasim Shah; Javed, Sajid Amin; Ashraf, Dawood

  1. By: Raza , Muhammad Wajid (Shaheed Benazir Bhutto University); Ashraf, Dawood (The Islamic Research and Teaching Institute (IRTI))
    Abstract: Traditionally, passive portfolios are structured using an easy to implement market capitalization method albeit highly skewed towards large cap stocks. The introduction of smart beta strategies has allowed passive investors to structure equity portfolios using alternative strategies such as fundamentalweighting, equal-weighting, and low-risk weighting strategies. This paper investigates whether constrained portfolios such as Shari’ah-compliant equity portfolios (SCEPs) can benefit by adopting smart beta strategies. The sample consists of equities from the USA, Canada, Australia, Europe, Middle East, Indonesia, and Malaysia for the period January 2003 to December 2016. The empirical findings suggest that smart beta SCEPs outperform not only conventional market capitalization weighted portfolios but also SCEPs following a market capitalization-weighted strategy. Higher risk-adjusted returns and lower drawdown as a result of following smart beta strategies highlight the importance of considering smart beta portfolio weighting strategies for passive investors. The supremacy of smart beta strategies indicates the value proposition for investors and fund managers alike. We also found that geographical location affects the performance of smart beta SCEPs; countries with a Muslim majority report higher cardinality and lower drawdowns. The results remained robust with alternative Shari’ah screening guidelines and empirical estimation methodology.
    Keywords: Portfolio construction methods; capital markets; Shari’ah investments; Smart beta
    JEL: F40 G21 G29
    Date: 2018–03–13
  2. By: Shirazi, Nasim Shah (The Islamic Research and Teaching Institute (IRTI)); Javed, Sajid Amin (Policy Solutions Lab, Sustainable Development Policy Institute (SDPI), Islamabad, Pakistan); Ashraf, Dawood (The Islamic Research and Teaching Institute (IRTI))
    Abstract: Using the data from Pakistan Panel Household Survey (2010), this paper assesses the role of financial inclusion in reducing social exclusion. The findings from regression analysis confirm a statistically significant negative impact of financial inclusion on social exclusion including deep [multidimensional] social exclusion. Deep exclusion for population having financial inclusion drops to 34.8% from 81% otherwise. Most importantly, none of the women was found having deep social exclusion if she has access to financial services. Results from logistic regression analysis confirm that having access to finacial services lowers the likelihood of facing marginal exclusion by 0.54 times and deep exclusion by 0.28 times compared to those having no access. Further, results from sum score method corroborate that Pakistan has higher prevalence of minor and marginal exclusion as compared to deep [multidimensional] social exclusion. The evidence further suggests that rather than income and consumption, old age, low education and gender contribute to multidimensional social exclusion mainly. The ratio of population within age groups 35-44 and 45-54 facing the multidimensional exclusion is 53.1% and 70.8% while the number rises to 85.5% and 80.5% for age groups 55-64 and 65 and above. Similarly, percentage of population with only primary education facing multidimensional social exclusion is 36% as compared to 4.7% for population having a degree. Finally, 23.3% of women face multidimensional exclusion as compared to 14.1% of men. We conclude that government needs to rethink the social design as well as to ensure improved access to financial services.
    Keywords: Social Exclusion; Financial Inclusion; Pakistan
    Date: 2018–01–30

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