Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach

• We examine whether Islamic stock indexes outperform conventional stock indexes.
• In 2007–2012 European, US, global Islamic indexes dominate conventional ones.
• Islamic indexes outperform their conventional peers during global financial crisis.
• Islamic investing performs better than conventional investing in meltdown economy.

This paper uses stochastic dominance (SD) analysis to examine whether Islamic stock indexes outperform conventional stock indexes by comparing nine Dow Jones Islamic indexes to their Dow Jones conventional counterparts: Asia Pacific, Canadian, Developed Country, Emerging Markets, European, Global, Japanese, UK, and US indexes. Over the periods of 1996–2012 and 2001–2006, we find that all conventional indexes stochastically dominate Islamic indexes at second and third orders in all markets except the European market. However, the European, US, and global Islamic stock indexes dominate conventional ones during the 2007–2012 period. The results indicate that Islamic indexes outperform their conventional peers during the recent global financial crisis. Thus, Islamic investing performs better than conventional investing during meltdown economy.