Performance of Islamic Financial Services 229
access to transaction - level data is extremely diffi cult. When it comes to
deposits, it is hard to get any reliable and detailed breakdown of the deposit
types offered by these institutions because of the common practice of “club-
bing” different types of deposits together. Similarly, details on the assets side
are often not very transparent. The above factors imply that the results of
these effi ciency studies are to be taken with caution and one cannot con-
clude that there is no need to improve effi ciency.
PERFORMANCE OF ISLAMIC CAPITAL MARKETS
In 1998, the FTSE Group launched the fi rst series of Islamic equity indices, the
FTSE Global Islamic Index Series (GIIS). The GIIS is a subset of the FTSE All -
World Index group, which includes stocks from 29 countries. The FTSE has
15 Islamic indices; classifi cation is based on industry (10 indices) and region
(Global, Americas, Europe, Pacifi c Basin, South Africa). This was followed by
the fi rst Dow Jones Islamic Market Index (DJIMI) in 1999, which was created
to track the performance of companies whose activities are consistent with
Shari’ah principles. More recently, Standard & Poor’s has also introduced
similar indices. The performance of all these indices is regularly monitored
and reported.
When the idea of Islamic equity portfolios with special screens was
developed, critics objected that by imposing such screens investors would
be constrained, and have limited diversifi cation benefi ts. However, this has
been proven wrong, both theoretically and empirically. Lightstone (2006)
argued that quantitative methods of stock selection are well suited to the
selection of active Islamic strategies that track established equity styles and
which can be evaluated against their benchmarks. The paper claimed that
using quantitative analysis to develop portfolio strategies using Islamic
screening rules strongly outperformed conventional benchmarks in 20 years
of back - testing in up and down markets. The paper showed that given the
availability of these strategies, there are now opportunities for asset alloca-
tion and style rotation.
Several empirical studies have looked at the effi ciency and performance
of the Islamic indices. Hussein (2005) undertook a comparison of the perfor-
mance of the Dow Jones Islamic Index and the FTSE Global Islamic Index
with those of the Dow Jones World Index and the FTSE All - World Index,
respectively. The study reviewed the returns over different periods to control
for behavior in different market conditions. The period from December 1993
to December 2004 was further divided into a bull period (December 1993 to
December 2000), a bear period (December 2000 to September 2002), and
a second bull period (September 2002 to December 2004). It found that
the application of Shari’ah screens did not have an adverse impact on the
performance of the indices. In the short run, a comparison of the raw and
risk - adjusted performance showed that the Islamic indices performed as well
as their counterparts over the entire period and in the second bull period.