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The IslamicShariahprinciples for investment in stock market

Author

Listed:
  • Md. Mahmudul Alam
  • Chowdhury Shahed Akbar
  • Shawon Muhammad Shahriar
  • Mohammad Monzur Elahi

Abstract

Purpose - Because of chronic financial crises experienced during past several decades repeatedly and a failure to protect investors’ rights as a result, the world is looking for an alternative form of stock market for quite some time so that interests of all relevant stakeholders can be safeguarded. At the same time, from the perspectives of devout Muslims, the current form of stock market restricts a Muslim to make investments in the market because of several unsatisfying provisions from the viewpoint of the Islamic law known asShariah. This study aims to provide the criteria under which conditions of the IslamicShariahpermit making investments in the stock market. Hand in hand with that primary discussion, it has been eluded briefly why the IslamicShariahprinciples offer a better alternative against conventional practices of the stock market. Design/methodology/approach - This is a descriptive study based on the literature review. Findings - This study explores the basic Islamic principles of investment in the stock market by revisiting the norms laid down byShariahand current global practices of Islamic stock market and indexes. Originality/value - This study will work as a guideline for investors and market authorities to understand the originalShariahrulings and the benchmark rulings for investment or establishing full-fledged Islamic stock markets, indexes and mutual funds.

Suggested Citation

  • Md. Mahmudul Alam & Chowdhury Shahed Akbar & Shawon Muhammad Shahriar & Mohammad Monzur Elahi, 2017. "The IslamicShariahprinciples for investment in stock market," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 9(2), pages 132-146, May.
    • Handle: RePEc:eme:qrfmpp:qrfm-09-2016-0029
    DOI: 10.1108/QRFM-09-2016-0029
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    References listed on IDEAS

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    1. Asyraf Wajdi Dusuki & Abdelazeem Abozaid, 2008. "Fiqh Issues in Short Selling as Implemented in the Islamic Capital Market in Malaysia قضايا فقهية فيما يتعلق بالبيع القصيركما هو مطبق في سوق المال الإسلامي بماليزيا," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 21(2), pages 63-78, July.
    2. Hassan, M. Kabir & Girard, Eric, 2010. "Faith-Based Ethical Investing: The Case Of Dow Jones Islamic Indexes," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 17, pages 1-31.
    3. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    4. El-Ashkar, Hmad Abdel Fattah, 1995. "Towards An Islamic Stock Exchange In A Transitional Stage," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 3, pages 79-112.
    5. M. Kabir Hassan & Mervyn K. Lewis (ed.), 2007. "Handbook of Islamic Banking," Books, Edward Elgar Publishing, number 3621.
    6. Ainul Islam & Mohammed Khaled, 2005. "Tests of Weak-Form Efficiency of the Dhaka Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1613-1624.
    7. Seif El- Din I . Taj El-Din, 2002. "Towards an Islamic Model of Stock Market نحو نموذج إسلامي لسوق الأسهم," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 14(1), pages 3-29, January.
    8. Khatkhatay, M. H. & Nisar, Shariq, 2007. "Shari[Ah Compliant Equity Investments: An Assessment Of Current Screening Norms," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 48-76.
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    Cited by:

    1. Fatma Alahouel & Nadia Loukil, 2020. "Financial uncertainty valuation: doesShariahcompliant screening matter?," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 14(1), pages 57-76, August.
    2. Harjito, Dwipraptono Agus & Alam, Md. Mahmudul & Dewi, Rani Ayu Kusuma, 2021. "Impacts of International Sports Events on the Stock Market: Evidence from the Announcement of the 18th Asian Games and 30th Southeast Asian Games," OSF Preprints 4dgne, Center for Open Science.
    3. Aloui, Chaker & Asadov, Alam & Al-kayed, Lama & Hkiri, Besma & Danila, Nevi, 2022. "Impact of the COVID-19 outbreak and its related announcements on the Chinese conventional and Islamic stocks’ connectedness," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    4. Mohammad Hariri, 2022. "Characterization of Islamic Investments Funds: A Systematic Literature Review," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(5), pages 1-14, May.

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    More about this item

    Keywords

    Islamic banking; Shariah; Capital market; Islamic stock exchange; Share market; Zakat on share investment; G11; P1; P47; P5;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies
    • P47 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Performance and Prospects
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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