Publication:
A comparative analysis of systematic risk and portfolio optimization differences between Shariah-compliant and conventional Canadian stocks
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Date
2026
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Abstract
This study aims to examine the effect of firm leverage on systematic risk between conventional and Shariah-compliant firms listed on the Canadian stock exchanges. Covering the period from 2017 to 2022, the research aims to assess the implications of Shariah-compliant strategies for portfolio performance over periods of normal and high volatility during Covid-19. With a sample of 412 firms, the study uses dynamic panel generalized method of moments estimation and the mean-variance efficient frontier framework to evaluate the risk�return profile of Shariah-compliant firms. These methodologies enable a robust analysis of systematic risk and reward-to-risk ratio, offering insights into the performance of Shariah-compliant portfolios under time-varying leverage conditions. The results reveal that Shariah-compliant portfolios generally exhibit lower systematic risk compared to their conventional counterparts because of their low-debt ratio. Additionally, these firms demonstrate a superior reward-to-risk ratio and a more favorable risk�return profile, especially during periods of economic instability. The findings highlight the effectiveness of Shariah-compliant portfolios in optimizing portfolio performance and managing risk. This study contributes to the literature by emphasizing the distinctive risk management characteristics of Shariah-compliant firms and their potential to enhance portfolio diversification. The findings underscore the value of Shariah-compliant investment strategies for investors seeking to mitigate risk and improve risk-adjusted returns, particularly in volatile economic environments.
Keywords
Firm leverage , Systematic risk and levered beta , Shariah-compliant firms , Dynamic panel GMM and Islamic finance , Portfolio optimization and mean-variance efficient frontier , Reward to risk , Sharpe ratio
Citation
Firano, M. O., El Alaoui, A. O., Dchieche, A., & Bacha, O. I. (2026). A comparative analysis of systematic risk and portfolio optimization differences between Shariah-compliant and conventional Canadian stocks. International Journal of Islamic and Middle Eastern Finance and Management. https://doi.org/10.1108/imefm-06-2025-0450
Publisher
Emerald Publishing Limited