Abstract
To our knowledge, this paper presents the first attempt to construct a Shari’ah compliant multiple goals program to address the portfolio selection problem from a conventional portfolio viewpoint. We have applied our model, based on deterministic values, to monthly equity data from 60 financial institutions in Gulf Cooperation Council economies, from 2006 to 2016. Our results show that investors gained higher returns from our Shari’ah compliant portfolios than from conventional portfolios. Thus, Shari’ah investments can benefit not only Islamic investors but also conventional and ethical investors, confirming our belief that conventional investors would benefit from considering ethical investments in their investment strategies.
Similar content being viewed by others
Notes
However, it is unusual for the West to adopt the Islamic financial system with its religious prescriptions.
References
AAOIFI (2004) Shari’ah standards. Accounting and Auditing Organization for Islamic Financial Institutions, Manama
Abbes M (2012) Risk and return of islamic and conventional indices. Int J Euro-Mediterr Stud 5(1):1–23
Al-Suwailem S (2011) Islamic approach to risk. Adopted from Sections 4 and 5 of the Author’s paper: Hedging in Islamic Finance, edited by IRTI, IDB
Aouni B, Ben Abdelaziz F, Martel JM (2005) Decision-Maker’s preferences modeling in the stochastic goal programming. Eur J Oper Res 162:610–618
Beekun R, Badawi J (2005) Balancing ethical responsibility among multiple organizational stakeholders: the Islamic perspective. J Bus Ethics 60(2):131–145
Ben Abdelaziz A, Aouni B, Fayedh RE (2007) Multi-objective stochastic programming for portfolio selection. Eur J Oper Res 177:1811–1823
Ben Abdelaziz F, Fayedh R, Rao A (2009) A discreet stochastic goal program for portfolio selection: the case of United Arab Emirates equity market. INFOR 47(1):5–13
Bilbao-Terol A, Arenas-Parra M, Cañal-Fernández V (2012) Selection of socially responsible portfolios using goal programming and fuzzy technology. Inf Sci 189:110–125
Binmahfouz S (2012) Investment characteristics of islamic investment portfolios. Evidence from Saudi Mutual Funds and Global Indices (Doctorate Theses). Durham Theses, Durham University. Retrieved from http://etheses.dur.ac.uk/4440/
Charnes A, Cooper WW (1959) Chance-constrained programming. Manag Sci 6(1):73–79
Crawford S, Jobst A, Oseni U (2010) Islamic finance: instruments and markets. Bloomsbury Information Ltd, Huntingdon
Dchieche A, Aboulaich R (2016) New approach to model Salam contract for profit and loss sharing. Int J Appl Eng Res 11(2):909–916
Derigs U, Marzban S (2008) Review and analysis of current Shari’ah-compliant equity screening practices. Int J Islamic Middle Eastern Financ Manag 1(4):285–303
Elasrag H (2016) Islamic finance for SMEs. Soc Sci Res Netw. https://doi.org/10.2139/ssrn.2842160
Iqbal Z, Mirakhor A (2011) Introduction to Islamic finance: theory and practice. Wiley, Singapore
Islam S (2013) An overview of Islamic managerial finance: comparative study with the conventional version. Islamic Manag Bus 5(11):182–193
Jobst AA (2009) Islamic securitisation: an ethical remedy to incentive problems? Int J Monet Econ Financ 2(3):348–365
Mansour N, Rebai A, Aouni B (2007) Portfolio selection through imprecise goal programming model: integration of the manager’s preferences. J Ind Eng Int 3(5):1–8
Markowitz H (1952) Portfolio selection. J Financ 7(1):77–91
Martel JM, Aouni B (1998) Diverse imprecise goal programming model formulations. J Glob Optim 12:127–138
Masri H (2017) A Shariah-compliant portfolio selection model. J Oper Res Soc 69(10):1–7
Mirakhor A (1989) General characteristics of an Islamic economic system. In: Al-Hasani B, Mirakhor A (eds) Essays on Iqtisad: the Islamic approach to economic problems. MD, Nur Corp
Obaidullah M (2005) Islamic financial services. King Abdul Aziz University, Islamic Economics Research Center, Jeddah
Parra MA, Terol AB, Rodr MV (2001) A fuzzy goal programming approach to portfolio selection. Eur J Oper Res 133:287–297
Rahimie A (2010) Analysing the characteristics and performance of Islamic funds: a critical review of the Malaysian case. Doctorate theses. Durham University
Rosly SA (2005) Critical issues on Islamic banking and financial market. Dinamas Publishing, Kuala Lumpur
Saleem MY (2012) Islamic commercial law. Wiley, Singapore
Shanmugam B, Zahari Z (2009) A primer on Islamic finance. The Research Foundation of CFA Institute, Charlottesville
Sheng A, Singh A (2011) Islamic finance revisited: conceptual and analytical issues from the perspective of conventional economics. Retrieved from https://mpra.ub.uni-muenchen.de/39007
Siddiqi M (2004) Riba, bank interest and the rationale of its prohibition. Visiting Scholars’ Research Series No. 2, Islamic Research and Training Institute: Islamic Development Bank
Thani NN, Abdullah MR, Hassan MH (2010) Law and practice of Islamic banking and finance. Sweet & Maxwell Asia, Selangor
Uddin S (2003) Understanding the framework of business in Islam in an Era of globalization: a review. Bus Ethics Eur Rev 1(12):23–32
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Bagheri, N. Deterministic goal programming approach for Islamic portfolio selection. Oper Res Int J 21, 1447–1459 (2021). https://doi.org/10.1007/s12351-019-00517-w
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12351-019-00517-w