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18Islamic Economic Studies Vol. 17 No. 2Such results from Sharpe and Treynor measures are expected as both qualitativeand quantitative screening of DJIM indices formation shrink the investmentuniverse for deriving the full benefits of portfolio diversification. These results areconsistent with other studies of Islamic investment performance behavior.However, results based on such measures only will be misleading as these measuredo not fully capture the restrictions impose on portfolio formation by Islamic law.So, we turn to more sophisticated performance and asset pricing methods to studytheir performance and asset pricing behavior.b. Results from multifactor testsResults from multifactor tests are shown in Table 2. Results are broken downinto three panels: Panel A (1996-2005) is the overall period, Panel B (1996-2000)is the first sub-period, and Panel C (2001-2005) is the second sub-period. Whilecolumn 2 repeats the unconditional alphas from Table 1, the style-adjustedunconditional alphas are in column 4 and the style-adjusted conditional alphas arein column 10.Table 2: Performance of Islamic indexes after controlling for style effects (Carhartfactors)Unconditional CAPM: R it -Rf t = α i +β i,1,0 (R mt -Rf t ) +ε itUnconditional Carhart model: R it -Rf t =α i +β i,1,0 (R mt -Rf t )+β i,2,0 HML t +β i,3,0 SMB t +β i,4,0 MOM t +ε itConditional Carhart model: R it -Rf t =α i +β i,1,0 (R mt -Rf t )+β i,2,0 HML t +β i,3,0 SMB t +β i,4,0 MOM t +Z t-1 [B′ i,1 (R mt -Rf t )+B′ i,2 HML t +B′ i,3 SMB t +B′ i,4 MOM t ]+ε itTo correct for the presence of autocorrelation and heteroskedasticity, standarderrors and t-statistics are calculated using the Newey-West heteroskedasticity andautocorrelation consistent (HAC) covariance matrix. In the case of the conditionalCarhart model, we save space by reporting the significance of (i) a Wald test (WT 1 )for the null hypothesis of Z t-1 B′ i,1 =0, (ii) a Wald test (WT 2 ) for the null hypothesisof Z t-1 B′ i,2 =0, (iii) a Wald test (WT 3 ) for the null hypothesis of Z t-1 B′ i,3 =0, and(iv) a Wald test (WT 4 ) for the null hypothesis ofZ t-1 B′ i,4 =0. WT 1 ,WT 2 , WT 3 , andWT 4 follows a 2 distribution with 12 degrees of freedom (CAN, CANI, UK, UKI,US, USI), 10 degrees of freedom (AP, API, EU, EUI, EMER, EMERI), and 6degrees of freedom (WDD, WDDI). “Adj. R 2 ” is the adjusted R-squared. Varianceinflation factors are less than 1.2, suggesting the absence of multicolinearity. a, b,and c indicate statistical significance at the 1, 5 and 10 percent levels.
Islamic Economic StudiesVol. 17 No. 2, January, 2010Panel A: January 1996 to December 2005Unconditional CAPM Unconditional Carhart Conditional Carhartα β Adj. R 2 α β HML SMB MOM Adj. R 2 α WT1 WT2 WT3 WT4 Adj. R 2CAN 0.48 1.13 a 0.69 0.34 1.11 a 0.06 0.23 a 0.04 0.72 0.49 123.22 a 2.31 24.44 b 5.87 0.76CANI 0.71 0.85 a 0.34 0.13 0.84 a -0.39 b 0.51 a 0.16 c 0.47 0.59 166.06 a 21.12 b 34.99 a 23.66 b 0.59UK 0.03 0.81 a 0.75 -0.09 0.83 a 0.13 c -0.02 0.05 0.75 -0.08 175.99 a 5.54 4.99 21.90 b 0.82UKI 0.24 0.65 a 0.48 0.09 0.66 a -0.29 a -0.15 b -0.03 0.57 0.34 203.45 a 27.32 a 19.03 c 18.92 c 0.72US 0.18 0.97 a 0.88 0.36 b 0.96 a -0.11 b -0.14 a -0.07 b 0.90 0.37 a 506.67 a 24.40 b 28.42 a 36.66 a 0.93USI 0.26 0.83 a 0.56 0.28 0.79 a 0.02 0.17 b -0.05 0.58 0.37 128.12 a 2.22 23.87 b 32.01 a 0.70AP -0.48 0.99 a 0.59 -0.83 b 1.02 a 0.28 b 0.13 0.13 c 0.61 -0.92 a 148.7 a 23.98 a 7.66 29.22 a 0.71API -0.30 0.69 a 0.39 -0.72 b 0.67 a -0.45 a 0.18 b 0.05 0.45 -0.96 b 54.73 a 2.89 9.09 1.99 0.55EU 0.15 1.02 a 0.82 0.07 1.02 a 0.03 0.09 b 0.04 0.82 -0.04 571.65 a 16.00 c 2,67 2.88 0.87EUI 0.29 0.75 a 0.65 0.12 0.73 a -0.22 b 0.09 c -0.02 0.67 0.25 236.21 a 30.93 a 2.02 2.95 0.76EMER -0.21 1.31 a 0.64 -0.53 1.24 a 0.31 b 0.42 a -0.02 0.70 -0.50 138.19 a 21.55 b 39.88 a 9.36 0.74EMERI -0.14 0.93 a 0.33 -0.66 0.84 a -0.50 b 0.57 a 0.00 0.44 -0.73 30.01 a 30.00 a 38.32 a 4.45 0.54WDD 0.01 0.98 a 0.99 0.03 0.99 a -0.01 -0.02 a 0.00 0.99 0.01 823.24 a 13.77 b 13.70 b 3.22 0.99WDDI 0.21 0.81 a 0.62 0.17 0.77 a -0.00 0.19 a -0.01 0.65 0.24 177.02 a 8.81 13.65 b 26.76 a 0.74AveragesIslamic 0.18 0.79 0.48 -0.08 0.76 -0.26 0.22 0.01 0.55 0.01 0.66MSCI 0.02 1.03 0.77 -0.09 1.02 0.10 0.10 0.02 0.78 -0.10 0.83Panel B: January 1996 to December 2000Unconditional CAPM Unconditional Carhart Conditional Carhartα β Adj. R 2 α β HML SMB MOM Adj. R 2 α WT1 WT2 WT3 WT4Adj. R 2CAN 0.35 1.17 a 0.64 0.37 1.16 a 0.13 0.31 a -0.01 0.70 0.41 162.60 a 3.34 4.05 27.78 a 0.79CANI 0.64 0.79 a 0.24 0.56 0.79 a -0.38 0.63 a 0.06 0.48 1.00 92.40 a 7.00 29.80 a 7.04 0.63UK 0.03 0.76 a 0.69 -0.01 0.76 a 0.07 -0.02 -0.00 0.69 0.08 271.78 a 4.85 3.71 5.99 0.80UKI 0.41 0.48 a 0.28 0.28 0.51 a -0.27 -0.18 c -0.02 0.47 0.88 b 59.57 a 2.12 5.33 5.41 0.76US 0.60 b 0.95 a 0.84 0.58 a 0.96 a -0.01 -0.16 a -0.01 0.88 0.59 b 254.70 a 8.79 3.90 10.02 0.91USI 1.13 b 0.63 a 0.40 0.97 c 0.60 a -0.14 0.19 c 0.11 0.48 1.06 b 40.42 a 6.66 6.64 2.39 0.62AP -1.35 b 1.20 a 0.65 -1.38 b 1.20 a 0.17 0.17 c -0.00 0.66 -1.70 b 69.80 a 2.43 2.09 2.08 0.72API -0.42 0.75 a 0.43 -0.40 0.76 a -0.31 c 0.20 c -0.08 0.50 -0.52 36.00 a 6.00 5.07 8.97 0.62EU 0.19 0.94 a 0.76 0.22 0.91 a -0.08 0.09 0.01 0.78 0.17 189.89 a 7.99 9.82 2.07 0.85EUI 0.59 c 0.60 a 0.54 0.53 0.60 a -0.23 c 0.14 b -0.01 0.60 1.14 a 70.50 a 25.78 a 5.55 5.01 0.75EMER -1.60 b 1.42 a 0.62 -1.33 b 1.43 a 0.17 0.45 a -0.18 0.69 -1.16 59.93 a 4.99 10.82 6.68 0.75EMERI -0.68 1.07 a 0.33 -0.61 1.06 a -0.39 0.59 a -0.08 0.45 0.24 37.69 a 3.33 17.95 c 11.44 0.63WDD 0.08 b 0.98 a 0.99 0.07 b 0.98 a -0.00 -0.02 a 0.01 0.99 0.03 197.39 a 13.59 b 7.04 15.69 b 0.99WDDI 0.87 b 0.64 a 0.47 0.74 c 0.61 a -0.09 0.22 b 0.11 0.59 0.96 b 47.87 a 2.76 2.08 4.59 0.70AveragesIslamic 0.36 0.71 0.38 0.30 0.70 -0.26 0.26 0.01 0.51 0.68 0.67MSCI -0.24 1.06 0.74 -0.21 1.06 0.06 0.12 -0.03 0.77 -0.23 0.83
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