Are Dow Jones Islamic equity indices exposed to interest rate risk?

Title: Are Dow Jones Islamic equity indices exposed to interest rate risk?
Creator: Shamsuddin, Abul
Relation: Economic Modelling Vol. 39, p. 273-281
Publisher Link: http://dx.doi.org/10.1016/j.econmod.2014.03.007
Publisher: Elsevier
Resource Type: journal article
Date: 2014
Description: The Dow Jones Islamic Market indices (DJIMI) are constructed by screening out stocks that are incompatible with Islam's prohibition of interest and certain lines of business. However, as a blunt instrument, the interest rate can affect discounted cash flows of any firm, even a firm with no financial leverage. This study reveals that the aggregate portfolio of Islamic stocks is immune to interest rate risk. However, at the sectoral level some Islamic equity portfolios demonstrate exposure to interest rate risk. Overall, evidence of interest rate risk exposure is less pronounced among Islamic sector portfolios than that of their mainstream counterparts—the Dow Jones World sector indices. The results also hold when interest rate risk is assessed in terms of the sensitivity of the DJIMI return to changes in level, slope and curvature of the interest rate term structure.
Subject: Dow Jones Islamic Market Index; ethical investment; interest rate risk
Identifier: http://hdl.handle.net/1959.13/1305912
Identifier: uon:21133
Identifier: ISSN:0264-9993
Language: eng
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