Impact of Ethical Screening on Investment Performance : The Case of the Dow Jones Islamic Index

Islamic ethical investors apply both Shari[ah and financial criteria when evaluating investments in order to ensure that the securities selected are consistent with their value system and beliefs. This paper examines the potential impact of these restrictions on investment performance by comparing the performance characteristics of a diversified portfolio of Islamic screened stocks with conventional benchmark portfolio. In contrast to prior research on ethical investment, the performance of Islamic ethical portfolio examined in this paper is not subject to the confounding effects of transaction costs, management fees, or differences in investment policy that are associated with actively managed funds. Contrary to expectations, our findings indicate that application of Islamic ethical screens do not necessarily have an adverse impact on investment performance