A comparative analysis of the Islamic index performancein Turkey between the years 2015-2018

Developed as an alternative to the current banking and finance system that has been in use for years, Islamic banking and finance system enabled investors with high religious sensitivity to participate in the economy. Notwithstanding its relatively short history, this human-oriented new system based on risk-sharing has grown rapidly and managed to attract both Muslim and non-Muslim individuals. Predicating itself on the principle of interest-free banking, Islamic finance system has successfully developed various capital market instruments for investors with high religious sensitivity, one of which is the Islamic Index, which has certain limitations and rules. Islamic Indices first appeared across the world with the intention of providing convenience to investors. The creation of Dow Jones Islamic Market Index, FTSE Global Islamic Index Series, and Kuala Lumpur Shariah Index by prominent index providers was the turning point for this system. The first instance of Islamic Index in Turkey was the Participation 30 Index that was formed according to Islamic criteria under the sponsorship of four participation banks. By 2014, the Participation 50 and Model Portfolio Indices were formed. Currently, there are three Islamic Indices that operate within Istanbul Stock Exchange (BIST). The present study aimed to compare risks and returns of Islamic indices and conventional indices in terms of bear and bull markets, and to reveal causal relationships between the two kinds of indices as well as risk spillovers. To this end, the performances of Participation 30, Participation 50, and BIST 100 indices were compared through performance measures of the Sharpe Ratio, Minimum Acceptable Risk, and the Sortino Ratio. The return performances of the indices were compared through the MS-ARMA model, whereas the MS-GARCH model was used to compare the risk performances. In addition, conventional causality tests and causality in variance tests were used to detect any causal relationships among the indices. The findings showed that Participation indices had lower risk and greater returns than the BIST 100 Index. Hence, it could be suggested that Participation Indices perform better than the BIST 100 Index. Keywords: Islamic Indices, BIST, Participation Indices