Risk, return and mean-variance efficiency of Islamic and non-Islamic stocks: evidence from a unique Malaysian data set

We find that Islamic stocks are more mean–variance efficient than non-Islamic stocks and the market because they reduce risk of the same level of returns. We combine a unique Malaysian data set of individual Islamic stocks (as opposed to aggregate stock indices) since 1997 with a new method where we apply Islamic business activity and financial ratio screens to the universe of Malaysian stocks. Both data sets show that Islamic stocks have an annualised standard deviation that is on average 3.43–3.78 percent points lower compared to non-Islamic stocks. This lower variance of Islamic stocks is exclusively driven by financial ratio screens.