The effect of international diversification to the performance of portfolio: An empirical application for conventional and İslamic stock market

Recently with the effect of developing financial markets and globalization, risk factors to which investors are exposed have increased. In order to be less affected by these risks, it is observed that investors tend to an international diversification as well as a national diversification rather than investing in a single asset. In this context, Islamic investment instruments, which have become more widespread especially in the last years and differs significantly from their conventional counterparts, have begun to draw considerable interest from both investors and academicians. In this study, it has been researched whether the international diversity, in which an investor investing in Turkey made a portfolio of Islamic stock indices, differs from the traditional stock index in terms of performance and risk. In the study including the period of 2002:06-2016:10, the monthly Islamic stock index data has been obtained from Morgan Stanley Capital International (MSCI). In this context, 7300 monthly closing price index data of 42 Islamic stocks index have been used in the study. The performance of conventional MSCI world index is compared with the performance of the optimal portfolio obtained as a consequence of optimization done in the study in which conventional and current unit root tests and cointegration analyzes were used. As a result of the study, it has been seen that the optimal portfolio has better performance than the traditional stock index in the pre-2008 global financial crisis and the 2008 global financial crisis period, but in the post-2008 global financial crisis period, the conventional stock index has better performance than the optimal portfolio. In addition, it has been ascertained that the optimal portfolio has a lower risk than the conventional stock index in the whole of the study, and thus it provides a protection against risks to the investor especially during the periods of stagnation and depression of the economy.