Historical price data analysis of Islamic finance indices and their conventional counterparts in the 2006-2021 period

Abstract

Islamic finance is a growing sector not only in Muslim countries but all around the world. Its initial goal was to offer shariah-compliant financial instruments to include the Muslim population not participating in the banking system. Nowadays, it is becoming a mainstream service that includes all customers by offering financial opportunities to non-Muslim investors. Its similarities with ESG investments attract investors from all backgrounds because of its ethical and sustainable principles. The socially responsible aspect of Islamic finance is very appealing to many investors, but some are still questioning its financial performance compared to conventional assets. Scholars examined the subject, but few incorporated empirical methods. Moreover, most of the literature available focuses on the 2007-2009 financial crisis. Therefore, this paper will tackle the subject with a quantitative approach to identify trends and measure the performance of Islamic financial indices during the 2006-2021 period. Monthly index return is used as the main variable of interest. Both traditional and shariah-compliant assets are compared over time. Distributions visualization and regression analyses show trends over time and measure performance during the 2006-2007 pre-crisis period, the 2008-2009 subprime crisis, the 2010-2019 recovery period, and the 2020-2021 covid-19 global financial crisis. Additionally, the ARIMA (Autoregressive integrated moving average) model is used to identify patterns over time based on historical price data.