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Analysing the performance of Islamic and conventional stock portfolios: Evidence from the Malaysia stock exchange

Rakhi, Sharmeen Ara (2019) Analysing the performance of Islamic and conventional stock portfolios: Evidence from the Malaysia stock exchange. Masters by Research thesis, Murdoch University.

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This thesis examines the performances of Islamic stock portfolio (ISP) and conventional stock portfolio (CSP) in the Malaysia stock market. The well-accepted capital asset pricing model (CAPM)-based four performance measures Jensen’s Alpha, Beta, Sharpe ratio and Treynor ratio are employed to evaluate the performances of ISP and CSP. The non-parametric stochastic dominance (SD) analysis is conducted which does not require the return series to be normally distributed. First, using daily data the ISP and CSP are constructed at sector level for the consumer product, industrial product, plantation, properties and trading service sectors from 01 January 2010 to 31 December 2017. In each sector, seven top stocks are selected based on market capitalisation. For the same period, the ISP and CSP are also constructed at market level by selecting top five stocks, one from each sector. The CAPM-based three out of four performance measures show that the ISP outperforms CSP for all sectors except plantation; however, ISP and CSP show similar performances at the market level. Further, the ISP stochastically dominates the CSP at market level as well as for all sectors except properties. The estimations of VaR at 95 percent significance level for sector and market level are consistent with the results of SD analysis. It means ISP has higher VaR where ISP stochastically dominates CSP, while it has lower VaR where CSP stochastically dominates ISP. This result is in line with fundamental finance theory, that is, ISP with higher VaR command higher risk premium and hence dominates CSP.

Item Type: Thesis (Masters by Research)
Murdoch Affiliation(s): Business
Notes: Research Masters with Training
Supervisor(s): Hoque, Ariful and Hassan, Kamrul
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