ABSTRACT
Islamic finance is based on religious and legal prescriptions that include two major prohibitions, namely the use of interest rates and speculation. These principles should, in theory, lead to transactions that generate less risk and volatility. It is therefore interesting to observe what happens in reality by comparing the evolution of Islamic and conventional indices in the equity markets of nine industrialized countries. Previous studies comparing Islamic and conventional indices have provided heterogeneous results, depending on the bullish or bearish orientation of the markets and countries concerned. Our results show that the two types of indexes essentially share common characteristics: rejection of a Gaussian distribution of daily returns, rejection of the absence of autocorrelation of daily returns, rejection of the random walk and optimal modeling of volatility with a GARCH (1,1) process (Generalized AutoRegressive Conditional Heteroskedasticity) driven by the volatility memory much more than by the price shocks. The rejection of weak efficiency hypothesis is obtained, whatever the country and whatever the type of index, and the volatility, contrary to what its principles suggest, is not lower for Islamic finance.
