Journal of Stock & Forex Trading
Open Access

Abstract

On Sharia'a-Compliance and Return to Investment

Lukman Arbi, Suren Basov and M. Ishaq Bhatti

In this paper we study the role of contract limitations on the performance of Islamic banks, in contrast to the role of asset limitations, invoked by Derigs and Marzban [1] to explain why Sharia’a-compliant strategies result in much lower portfolio performance than do the conventional strategies. Their results were, however, challenged in recent empirical paper by Walkshäusl and Lobe [2], who argued asset limitation even sometimes, is beneficial. The reason may be that they prevent excessive risk taking by the managers. Contract limitations provide a more nuanced explanation of performance of Islamic banks, and can explain why Islamic indexes seem to underperform in emergent, rather than developed markets, as documented by Walkshäusl and Lobe.