Ulaştırma ve Lojistik Kongreleri

Gold and Portfolio Diversification: A Stochastic Dominance Analysis of the Dow Jones Islamic Indices

Osamah Alkhazali
Dr., American University of Sharjah, Sharjah, United Arab Emirates

Taisier Zoubi
Dr., American University of Sharjah, Sharjah, United Arab Emirates

This paper examines the role of gold in diversification in eight Dow Jones Islamic stock indices portfolio from 1996 to 2017. Also using stochastic dominance (SD) analysis, it tests the null hypothesis that gold-Islamic stock portfolio return does not dominate (outperform) non-gold Islamic stock portfolio return. The SD results show that gold-Islamic stock portfolio stochastically dominates the one without gold at the FSD, SSD and TSD order in all Islamic stock indices. Moreover, the level of SD order increases when we add more gold in the portfolio. We find that the SD order is manifest during the financial crisis (2007-2009) at all percentage holdings of gold. This indicates that risk-averse investors in Islamic stock indices should include gold in their portfolios in order to maximize their expected utilities. Furthermore, the results of MV analysis consistent with the ones of the SD. The findings of this paper suggest that investors may design appropriate investments with gold to diversify their Islamic stock portfolios

Keywords: Gold, Dow Jones Islamic stock Indices, Portfolio diversification, Stochastic dominance