The performance of Islamic versus conventional stocks during the COVID-19 shock: Evidence from firm-level data

Highlights

• Performance of Islamic stocks is compared with conventional stocks during the Covid-19 shock.

• Firm-level data is employed from the Pakistan.

• Islamic stocks proved to be more resilient to the stock.

• Mixed evidence of extant studies might be due to the use of stock market index level data.

Abstract

In this study, we extend the recently heated debate that compares the performance of Shariah compliant equities with their non-Shariah compliant counterparts especially during the Covid-19 shock. Unlike the existing literature, which uses stock market index level data to reach controversial conclusions, we use firm-level stock returns data to find robust evidence that Shariah compliant stocks outperformed their conventional counterparts during the Covid-19 market meltdown. More specifically, we find that the prices of Shariah compliant stocks reacted to the increase in Coronavirus confirmed cases and government social distancing measures with lower negative returns than the prices of non-Shariah compliant stocks. Overall, our findings imply that Shariah compliant stocks fared better during the Covid-19 crisis episode.