Diversification: A Sharia Effect? Some Evidence from Malaysia

This study compares the effect of diversification between the Sharia and non-Sharia stocks listed on Bursa Malaysia during the period January 2002 to April 2014. The standard deviations of stock portfolios were calculated for the entire and two market phase defined bull and bear periods. Independent samples T-test indicated that there is significant difference in standard deviation between Sharia and non-Sharia portfolios for the bear and first bull period with no significant difference in the entire and second bull period. It can be concluded that portfolio diversification applies in both Sharia and non-Sharia compliant stocks of the Malaysian stock market. In addition, Sharia compliant stocks required a smaller number of stocks in a portfolio to reduce specific amount of risk.