Performance of global Islamic versus conventional share indices: International evidence

• Lack of empirical studies in Islamic finance despite fast growth
• Guide investors in their decision with information on the risk and return relation.
• Islamic indices outperformed their respective conventional indices during bear periods.
• Differences in risk-adjusted performances enable investors to diversify during different cycles.

This paper provides empirical evidence on risk-adjusted performance comparisons of share indices from Islamic and conventional markets. To ensure valid comparisons, the selected Islamic indices are matched with conventional indices. The Treasury-bill rate and the MSCI All-World index are used as risk-free rate and world benchmark, respectively. Monthly returns are analyzed and four sub-periods are examined as crisis and non-crisis periods. Findings reveal that Islamic indices outperformed their conventional counterparts during crisis periods but results are inconclusive for the non-crisis periods. This could be due to the conservative nature of Shari'ah-compliant investments offering investors superior investment alternative during crisis.