Title

Momentum strategies of conventional and Islamic finance

Abstract/Description

The foremost motivation of this study is to explore and compare the behavioral implications of momentum strategies on stock portfolios of conventional and faith-based Islamic finance. The principal asset pricing model is Carhart’s four-factor model, accompanied by the CAPM and Fama & French three-factor models as a comparison base. The two broad categories of conventional and Islamic finance have been segregated into four comparable subgroups: Conventional vs. Islamic banks, Investment banks vs Modarabahs, Insurance vs. leasing, and Mutual funds vs. Islamic mutual funds. The descriptive features have identified the presence of momentum profits in both conventional and Islamic stock portfolios. However, Islamic stocks yielded higher returns than conventional compeers. Similar trends are observed by applying Carhart’s four-factor model as well. A significant pre-recession momentum effect in mutual funds and modarabahs is overturned in the post-recession period. The time-variant volatility is modeled through the EGARCH-M based framework and has depicted sensitivity of returns due to omitted risk factors . Further, Islamic stock portfolios are better shock absorbent and have greater receptivity to leverage effect than conventional peers.

Track

Accounting, Law, and Finance

Session Number/Theme

Session 1A: Islamic Finance

Session Chair

Dr. Irum Saba, Institute of Business Administration, Karachi

Session Discussant

Dr. Mohsin Zahid Khawaja; Dr. Mohsin Sadaqat; Madeeha Omer Lakhani; Nader Virk

Start Date/Time

23-6-2022 12:00 PM

End Date/Time

23-6-2022 12:20 PM

Location

Training Room 3, Marriott Hotel, Karachi

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Jun 23rd, 12:00 PM Jun 23rd, 12:20 PM

Momentum strategies of conventional and Islamic finance

Training Room 3, Marriott Hotel, Karachi

The foremost motivation of this study is to explore and compare the behavioral implications of momentum strategies on stock portfolios of conventional and faith-based Islamic finance. The principal asset pricing model is Carhart’s four-factor model, accompanied by the CAPM and Fama & French three-factor models as a comparison base. The two broad categories of conventional and Islamic finance have been segregated into four comparable subgroups: Conventional vs. Islamic banks, Investment banks vs Modarabahs, Insurance vs. leasing, and Mutual funds vs. Islamic mutual funds. The descriptive features have identified the presence of momentum profits in both conventional and Islamic stock portfolios. However, Islamic stocks yielded higher returns than conventional compeers. Similar trends are observed by applying Carhart’s four-factor model as well. A significant pre-recession momentum effect in mutual funds and modarabahs is overturned in the post-recession period. The time-variant volatility is modeled through the EGARCH-M based framework and has depicted sensitivity of returns due to omitted risk factors . Further, Islamic stock portfolios are better shock absorbent and have greater receptivity to leverage effect than conventional peers.