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The idiosyncratic risks of a Shariah compliant REIT investor

Author

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  • Omokolade Akinsomi
  • Seow Eng Ong
  • Muhammad Faishal Ibrahim
  • Graeme Newell

Abstract

This paper investigates the impact of Shariah compliant investment principles on the idiosyncratic risks of a Shariah compliant REIT investor. The importance of idiosyncratic risks in explaining cross-sectional returns of a constructed Shariah compliant REIT investor's portfolio is further examined in this paper. In all constructed portfolios examined, there is a positive and significant relationship between expected idiosyncratic volatility and expected REIT returns of the constructed Shariah compliant portfolio (GCC Shariah compliance standards). This result is consistent and persistent after robustness tests are carried out. As such, idiosyncratic risks are an important factor to consider in the pricing of Shariah compliant REIT stock returns. On further examination, the significant relationship as seen in the constructed Shariah compliant portfolio can be explained from the firm-specific risks of the residential REIT sector which is the most dominant sector during the period of investigation. The implications of these results also point to the importance of Shariah compliance standards and screening methods which is a significant feature associated with the understanding of the relationship of idiosyncratic risks on expected REIT returns of Shariah portfolios. Results show contrasting results between a less-restrictive and restrictive Shariah compliant portfolio. We find a significant relationship between expected returns and the idiosyncratic risks specifically in the restrictive Shariah compliant portfolio.

Suggested Citation

  • Omokolade Akinsomi & Seow Eng Ong & Muhammad Faishal Ibrahim & Graeme Newell, 2014. "The idiosyncratic risks of a Shariah compliant REIT investor," Journal of Property Research, Taylor & Francis Journals, vol. 31(3), pages 211-243, September.
    • Handle: RePEc:taf:jpropr:v:31:y:2014:i:3:p:211-243
    DOI: 10.1080/09599916.2013.841276
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    Cited by:

    1. Stanimira Milcheva & Bing Zhu, 2018. "Asset pricing, spatial linkages and contagion in real estate stocks," Journal of Property Research, Taylor & Francis Journals, vol. 35(4), pages 271-295, October.
    2. Cheong, Calvin W.H., 2021. "Risk, resilience, and Shariah-compliance," Research in International Business and Finance, Elsevier, vol. 55(C).
    3. Massimo Guidolin & Manuela Pedio & Milena T. Petrova, 2023. "The Predictability of Real Estate Excess Returns: An Out-of-Sample Economic Value Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 67(1), pages 108-149, July.
    4. Kola Ijasan & Peterson Owusu Junior & George Tweneboah & Tunbosun Oyedokun & Anokye M. Adam, 2021. "Analysing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(3), pages 58-91, September.

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