The Islamic Capital Asset Pricing Model by Selim (2008) provides a theoretical framework for musharakah contracts, a form of profit-and-loss sharing investment, in order to assess the optimal portfolio choice of an Islamic investor. According to this theory, the beta-risk of an Islamic investment must be smaller than one. This hypothesis is tested using data of the Dow Jones Islamic indices of the European, the U.S., and the world market from 1996 to 2010. Applying the Conditional CAPM approach, the risk-return relationship of up- and down-market periods is estimated. The results reveal that the betas of all Islamic indices are smaller than one which is in line with Selim's theory. Additionally, a significant positive risk-return relationship during up-market periods and a negative relationship in down-market periods are observed.According to this theory, the beta-risk of an Islamic investment must be smaller than one. This hypothesis is tested using data of the Dow Jones Islamic indices of the European, the U.S., and the world market from 1996 to 2010.

Title | : | Risk Measurement of Islamic Stock Market Indices with Islamic CAPM |

Author | : | Merlind Weber, Klaus Spremann |

Publisher | : | - 2011 |

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