Article-4 Does Shari’ah Index Offer an Edge over Traditional Index during COVID-19? Empirical Evidence from the Capital Market of Bangladesh

Abstract

Although the concept of the Shari'ah (Islamic law) compliant index came into light in the 1960s in Asia, the Dhaka Stock Exchange (DSE) became the first bourse to introduce a similar index in 2014 for the listed companies, including Islamic banks and financial institutions. The global stock markets observed a colossal fall in index value during the initial stage of the ongoing COVID-19 pandemic, and Bangladesh was no exception. This paper aims to evaluate the impact of COVID-19 on Bangladesh's capital market by adopting the event study method. The DSE Broad Index (DSEX) is taken as the population, whereas the DSE 30 Index (DS30) and the DSEX Shari'ah Index (DSES) are used as samples from February 2, 2019, to August 5, 2021. The study reveals that although there was a fall in indexes, COVID-19 has failed to generate significant abnormal returns (AR) for investors. However, unlike the DS30, the DSES enjoyed positive AR and cumulative abnormal return (CAR) after the hit of the second wave despite having mixed experiences during the first wave. In addition, it is evident that the weak form of efficiency persists in Bangladesh under the Efficient Market Hypothesis (EMH) theory.