Islamic Equity Investments and the COVID-19 Pandemic

Abstract

SP this period coincides with the beginning of the global outbreak of COVID-19. This claim is in line with the view that, due to the stringent screening, Islamic equity investments provide hedging benefits during market downfalls. In this paper, we investigate whether Islamic equity indices (IEIs), in general, exhibit hedging benefits during the COVID-19 period for global, the US, and European markets. We also test whether the difference in Shari’ah screening criteria has any impact on the relative performance of Islamic equity investments. Our empirical findings support the hypothesis that IEIs do provide hedging benefits during severe market downfalls especially those following the market value of equity-based Shari’ah screening criteria. The excess performance, however, is associated largely with higher systematic risk suggesting that hedging benefits come at an additional cost. The results remained robust following the Dual Beta model and Logistic smooth autoregression model.