Style Comparison of U.S. Islamic Equity Market Indexes

Abstract

Differences between the stock selection criteria of stock indexes can cause them to behave differently. This study compared the styles of four Islamic indexes from major index providers, whose Shariah screening criteria are at variance. To ensure fairness in comparison, the authors chose Islamic indexes that represent only the U.S. stock market because conditions vary across markets and financial markets have been found to be segmented by countries. Likewise, a fixed set of style benchmarks and T-bills were used as asset classes in determining the style of each Islamic index. A thorough comparison revealed important differences in the styles of the analyzed Islamic indexes, much of which can be attributed to differences in their screening criteria in light of the relevant literature.