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Price Reaction of Ethically Screened Stocks: A Study of the Dow Jones Islamic Market World Index

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Abstract

This paper investigates the short-term effects on the price of the ethically screened stocks of the Dow Jones Islamic Market World Index (DJIMWI) quarterly revisions. Using a sample of 8250 stocks from May 1999 through June 2012, we find a significant price reaction of the ethically screened stocks following additions and deletions. The results show that additions (deletions) from emerging stock markets tend to experience a greater and significantly positive (negative) price response than additions (deletions) from the developed markets. Further tests reveal that the price reactions following DJIMWI revisions are likely to be driven by shifts in investor sentiment rather than changes in firm fundamentals.

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Notes

  1. Haram, riba, maysi and gharar are the Arabic words for sin, interest, gambling, speculation and uncertainty, respectively.

  2. See “Data” section for more details on the selection applied by the DJIMWI.

  3. A similar approach is used by Oberndorfer et al. (2013). As robustness, we use the adjusted PATELL test suggested by Kolari and Pynnonen (2010) to correct for cross-correlation and the results are robust. We have used SAS to estimate Savickas's (2003) and PATELL test statistics.

  4. A similar approach is used by Claessens and Yafeh (2012) and Eun et al. (2015) in the context of periodic revision of the conventional stock indices.

  5. We are grateful to Dow Jones Company for providing us the data and the announcement dates for additions and deletions from the Dow Jones Islamic Market World Index.

  6. http://www.un.org/en/development/desa/policy/wesp/wesp_current/2014wesp_country_classification.pdf.

  7. https://www.djindexes.com/mdsidx/downloads/fact_info/Dow_Jones_Islamic_Market_World_Index_Fact_Sheet.pdf.

  8. The factor loadings of the three-factor model by country are reported in “Appendix”.

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Author information

Authors and Affiliations

  1. Cardiff Business School, Cardiff University, Cardiff, UK

    Khelifa Mazouz

  2. Cranfield School of Management, Cranfield University, Cranfield, UK

    Abdulkadir Mohamed

  3. Alliance Manchester Business School, The University of Manchester, Manchester, UK

    Brahim Saadouni

  4. School of Banking and Finance, The University of New South Wales, Sydney, Australia

    Brahim Saadouni

Authors
  1. Khelifa Mazouz
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  2. Abdulkadir Mohamed
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  3. Brahim Saadouni
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Correspondence to Brahim Saadouni.

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Conflict of interest

Khelifa Mazouz, Abdulkadir Mohamed, Brahim Saadouni declare that they have no conflict of interest.

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This article does not contain material from any studies with human participants or animals performed by any of the authors.

Additional information

The paper was completed while the corresponding author was holding a visiting fellowship at the School of Banking and Finance, the University of New South Wales, Sydney.

Appendix

Appendix

See Table 7.

Table 7 This table presents the regression results of the three-factor models by country [Eq. (1) in “Methodology” section]
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Mazouz, K., Mohamed, A. & Saadouni, B. Price Reaction of Ethically Screened Stocks: A Study of the Dow Jones Islamic Market World Index. J Bus Ethics 154, 683–699 (2019). https://doi.org/10.1007/s10551-016-3389-y

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