SENSITIVITY OF USA ISLAMIC EQUITY MARKET INDEXES TO CHANGES IN INTEREST RATES: A COMPARATIVE ANALYSIS

Abstract

Major stock market index providers differ in the stock selection criteria they use to select stocks for their Islamic indexes. Past research shows that this can cause the investment characteristics of their Islamic indexes to differ, which has implications for use of Islamic indexes such as for benchmarking. This study empirically examines if differences in the stocks selection criteria of Islamic indexes lead to variation in their levels of sensitivity to changes in interest rates. Monthly data of Islamic indexes of four major index providers i.e. MSCI, FTSE, Dow Jones and S&P, is analyzed for the period Jan 2008 to Dec 2016. Empirical durations of the Islamic indexes are estimated as a measure of their sensitivity to changes in interest rates. Overall results suggest that all of the examined Islamic indexes show different levels of sensitivity to interest rates. Which could largely be attributed to the differences in their stock selection criteria.