The Impact of Informed Religiosity on Portfolio Formation
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The recent uncertainty in the global financial markets has highlighted to financial market participants the importance of investment decision-making. Despite this, there is still comparatively little research on the factors that influence investment decisions. In particular, the issue of religion has had little attention, though it is potentially significant given the strong influence it has over many individuals' values. In this paper we examine the influence of Islam on investor decision-making using an experimental methodology. We find that those of Islamic faith are more likely to avoid investing in equities that are likely to be considered haram. This, however, also leads them to form less diversified, smaller portfolios, when this is not necessary. We also find that they are more risk-averse and likely to select companies that possess lower beta risk. This, we argue, is of interest to many market participants, particularly those in the advisory, portfolio construction and marketing areas.
Review of Islamic Economics