Handbook of Empirical Research on Islam and Economic Life
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Handbook of Empirical Research on Islam and Economic Life

Edited by M. Kabir Hassan

In Islamic jurisprudence, a comprehensive ethic has been formulated governing how business and commerce should be run, how accountability to God and the community is to be achieved, and how banking and finance is to be arranged. This Handbook examines how well these values are translated into actual performance. It explores whether those holding true to the system are hindered and put at a disadvantage or whether the Islamic institutions have been able to demonstrate that faith-based activities can be rewarding, both economically and spiritually.
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Chapter 22: Do stock returns react to an Islamic label?

Raphie Hayat and Celia de Anca

Abstract

We study the effects of an Islamic label on US stock returns and the effect of this label by analysing abnormal returns of US stocks when they are added to or removed from an Islamic index. Unlike in previous research, we find that neither addition to nor deletion from an Islamic index leads to abnormal returns. This holds for short-term periods (announcement and actual inclusion date) as well as for longer periods. Furthermore, we did not find convincing evidence that addition to an Islamic index signals higher liquidity, profitability, investor awareness or lower risk. We conclude that an Islamic label for stocks does not convey any additional financial information to investors.

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