Document Type

Article

Abstract

The Islamic financial system experienced a disproportionately smaller economic hardship in 2008 and 2009 because adherence to Shariʿa tends to encourage conservative investment approaches. Islamic mutual funds were prohibited from investing in the non-Islamic financial sector, highly leveraged companies, and various derivative instruments. Ultimately, this conservative investment approach may have been an effective strategy for mitigating downside risk. The article analyzes the fundamental classical legal requirements that pertain to modern Islamic finance, compares the modern view of Islamic equity investing and its secular capitalist counterpart, explores whether adherence to Shariʿa principles, as defined by the Dow Jones Islamic Market Index, has had a positive or negative impact on the risk and return of the index as benchmarked against comparable indices (the Dow Jones Sustainability Index and the Dow Jones Global Index) over the last decade, and compares the performance of the Dow Jones Islamic Market Index with the Dow Jones Industrial Average and the S&P 500 over the past ten years, with special consideration of the last year. The study concludes by supporting the claim that a Shariʿa-compliant investment approach does not penalize investors and could be used as a hedge against financial downturns.

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