Does low leverage minimise the impact of financial shocks? New optimisation strategies using Islamic stock screening for European portfolios

El-Alaoui, AbdelKader Ouatik and Bacha, Obiyathulla Ismath and Masih, Mansur and Asutay, Mehmet,(2018), Does low leverage minimise the impact of financial shocks? New optimisation strategies using Islamic stock screening for European portfolios. , J. Int. Financ. Markets Inst. Money, UNSPECIFIED

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Abstract

This study embodies a preliminary endeavour at analysing the impact of leverage on portfolio behaviour, with specific reference to return and volatility, in the European stock markets, using the debt ratio as one of the important benchmarks for Islamic stock screening. Given the focus of Islamic stock screening on the debt ratio, we use data from 320 firms for eight European countries which were classified according to their level of debt and size. For this, the portfolio optimisation based Mean-Variance Efficient Frontier (MVEF), the Sharpe Ratio and the Capital Market Line (CML) were employed. Our findings tend to demonstrate that, under shocks, high leverage worsens the portfolio return, volatility, and value at risk. The results further point out that optimal portfolio composition is obtained through a high proportion of low debt funds in the case of two separate equity funds, of low debt and high debt portfolios respectively. The systematic risk of several portfolio strategies is further explored with regards to a benchmark of European index and market-wide, return and volatility shocks
Keywords : Return Volatility Portfolio leverage European stock market Mean variance efficient frontier Islamic stock screening, UNSPECIFIED
Journal or Publication Title: J. Int. Financ. Markets Inst. Money
Volume: 57
Number: UNSPECIFIED
Item Type: Article
Subjects: Ekonomi Islam
Depositing User: Nila Nurjanah
Date Deposited: 27 Dec 2019 09:28
Last Modified: 27 Dec 2019 09:28
URI: https://repofeb.undip.ac.id/id/eprint/1110

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