International Journal of Global Energy Markets and Finance
ISSN (Print): ISSN Pending ISSN (Online): ISSN Pending Website: http://www.sciepub.com/journal/ijgefm Editor-in-chief: Abdelkader Derbali
Open Access
Journal Browser
Go
International Journal of Global Energy Markets and Finance. 2018, 1(1), 26-40
DOI: 10.12691/ijgefm-1-1-5
Open AccessArticle

Time Varying Downside Betas: Evidence from Conventional and Islamic Indices

Majoul Neila1, and Hellara Slaheddine1

1Higher Institute of Management, Tunis University, Tunisia

Pub. Date: August 03, 2018

Cite this paper:
Majoul Neila and Hellara Slaheddine. Time Varying Downside Betas: Evidence from Conventional and Islamic Indices. International Journal of Global Energy Markets and Finance. 2018; 1(1):26-40. doi: 10.12691/ijgefm-1-1-5

Abstract

In the current study, we assess the risk from conventional and Islamic stock indices under CAPM downside risk. We apply the DCC-GARCH and the BEKK-GARCH models to create the time-varying betas for the conventional and Islamic stock indices of 7 countries: Malaysia, Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Indonesia. We use daily data, from 10 August 2006 to 26 November 2015. We examined how the restrictions imposed by Islamic law affect the risk. The results show no remarkable difference between the two classes of stock indices. This can be explained by the contradictory effect of filtering criteria on risk. Also, the results showed that the measures Downside risk are more appropriate than traditional measures for both Islamic and conventional stock indices.

Keywords:
Time-Varying Beta CAPM downside risk measures Stock market indices Islamic finance

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Markowitz H, “Portfolio selection: Efficient diversification of investments”, Cowles foundation monograph, n°16, New York. 1959.
 
[2]  Cheremushkin SV, “Internal inconsistency of downside CAPM model”, SSRN 1985372. 2012.
 
[3]  Nawrocki D: “Optimal algorithm and lower partial moment: ex-post results” Applied Economics, vol 23(3), pp 465-471. 1999.
 
[4]  Ang, A, Joseph C, Yuhang X. “Downside Risk,” AFA 2005 Philadelphia Meetings. URL: http://ssrn.com/abstract=641843, 2005.
 
[5]  Abbas Q et Ayub O, Sargana SM, Saeed SK, “From Regular-Beta CAPM to Downside-Beta CAPM,” European Journal of Social Sciences, 21(2). 189-203. 2011.
 
[6]  Artavanis N, Diacogiannis G, Mylonakis J., “The D-CAPM: The Case of Great Britain and France,” International Journal of Economics and Finance, 2 (3), 25-38. 2010
 
[7]  Galagedera D.U.A, Brooks R.D: “Is co-skewness a better measure of risk in the downside than downside beta? Evidence in emerging market data”, Journal of multinational finance management, 17,214-230. 2007.
 
[8]  Post T., and Vliet, P.V., “Downside Risk and Asset Pricing”. Journal of Banking & Finance, 30(3), 823-849. 2006.
 
[9]  Cwynar, W and Piotr K., “Is D-CAPM Superior to CAPM When Assessing Investment Risk on the Polish Stock Market?” Working Paper. URL: http://ssrn.com/abstract=1550684. 2010.
 
[10]  Cheremushkin SV,“Internal inconsistency of downside CAPM model”, SSRN 1985372. 2012.
 
[11]  Roy, A.D.,“Safety first and the Holding of Assets”. Econometrica, 20, 431-449. 1952.
 
[12]  Bawa, V., and Lindenberg, E., “Capital Market Equilibrium in a Mean-Lower Partial Moment Framework”. Journal of Financial Economics, 5(2), 189–200. 1977.
 
[13]  Hogan, W.W, and Warren, J. M., “Computation of the Efficient Boundary in the E-S Portfolio Selection Model”. Journal of Financial and Quantitative Analysis, 7(4), 1881-1896. 1974.
 
[14]  Harlow, W. and Rao K., “Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence”. Journal of Financial and Quantitative Analysis, 24, pp. 285-311. 1989.
 
[15]  Nantell, T. and Price, B. (1979), “An Analytical Comparison of Variance and Semivariance Capital Market Theories”. Journal of Financial and Quantitative Analysis, 14(2), pp. 221-242. 1979.
 
[16]  Price, K., Price, B., Nantell, T. J., “Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results”. Journal of Finance, 37(3), 843-855.1982.
 
[17]  Holton, G., “Defining risk”. Financial Analysts Journal, 60(6). 2004.
 
[18]  Bekri M, Kim A, “Tail risk analysis of the S§P/ OIC COMCEC 50 index” Borsa Istanbul Review, 16, 1-16. 2015.
 
[19]  Knight, O. F., “Risk, uncertainty and profit”. Houghton Miffin. 1921.
 
[20]  Obaidullah, M., “Teaching corporate finance from an Islamic perspective”. Islamic Economics Research Centre Kingdom of Saudi Arabia: King Abdulaziz University. 2006.
 
[21]  Parandak S, Turk A B., “OPEC Oil Value at Risk (VaR) Price Estimate Using GARCH Approach”. Journal of Renewable Natural Resources Bhutan, 3(6), 40-55.2015.
 
[22]  Al-Suwailem, S., “Hedging in islamic finance”. Islamic Development Bank. King Fahad National Library Cataloguing-in-Publication Data. 2006.
 
[23]  Bouslama, G.: “Uncertainty and risk management from Islamic perspective” Research in International Business and Finance. 2016.
 
[24]  Engel, R. F., & Kroner, K. F., “Multivariate simultaneous generalized ARCH”. Econometric theory, 11(01), 122-150. 1995.
 
[25]  Engel, R. F., “Dynamic conditional correlation — A simple class of multivariate GARCH models”. Journal of Business and Economic Statistics, 20(3), 339-350. 2002.
 
[26]  Estrada, J., “Mean–semivariance behavior: Downside Risk and Capital Asset Pricing”. International Review of Economics & Finance, 16(2), 169-185. 2007.
 
[27]  Kaplanski, G., “Traditional beta, downside risk beta and market risk premiums”. The Quarterly Review of Economics and Finance, 44, 636-653.2004
 
[28]  Tsai HJ, Chen MC, Yang CY, “A time varying perspective on the CAPM and downside betas” International Review of Economics and finance, 29, 440-454. 2014.
 
[29]  Mwamba JWM, Hammoudeh S, Gupta R, “Financial tail risks and the shapes of the extreme value distribution: A comparison between conventional and sharia compliant stock indexes” Working paper series. 2014.
 
[30]  Hussein, K. and M. Omran: “Ethical investment revisited: Evidence from Dow Jones Islamic Indexes”. Journal of Investing. 12(2). 105-124. 2005.