Islamist attacks hit US Islamic stocks, a study reveals

Shedding light on the downturns experienced by US Islamic indices following Islamist terrorist attacks in the US, a peer-reviewed study highlights that investors have conflated Islamic finance with Islamist terrorism. MARC ROUSSOT has more.

The attacks at the Inland Regional Center in San Bernardino and the Pulse nightclub in Orlando were two of the most striking acts of terrorism in recent years in the US. Perpetrated by Jihadi-inspired extremists in 2015 and 2016 respectively, both mass shootings left 63 people dead and 75 injured.

Following these two attacks, heavily covered by the media, US Islamic indices were likely to have taken a hit while their conventional counterparts would not have been significantly impacted, according to the result of a recent study published in the Journal of Comparative Economics.

“We didn’t assess the specific effect of each terrorist event but we found that the attacks which attracted most of the public and media attention were those which had the most negative effect on returns of US Islamic indices. The San Bernardino attacks and the mass shooting in Orlando at a nightclub have particularly affected the US public and media attention,” Jonathan Peillex, a professor of finance at the Leonard de Vinci Business School (EMLV) and one of the writers of the research, tells IFN.

Conducted with Imane El Ouadghiri, also a professor of finance at the EMLV, the study analyzes the performance of the Dow Jones Islamic Market US Index and the FTSE Sharia USA Index as well as their conventional counterparts, the Dow Jones US Total Stock Market Index and the FTSE USA Index between 2004-17. But the results were not limited to these four US indices.

Analyzing the performance of the MSCI USA Islamic Index and its conventional counterpart, the MSCI USA Index, between 2007 and 2017 as a robustness check, the researchers obtained the same findings. Extrapolating, Peillex even believes that, reproduced in other western countries, the study would have generated similar results.

“Investors’ behavior could be different in Muslim-majority countries. It might be interesting to reproduce the study in countries where Islamic finance is more highly developed, such as Indonesia, Malaysia and Saudi Arabia, for instance,” Peillex says.

But in the end, how much has been wiped out due to investors’ erratic behavior?

The study does not answer this question but it highlights that there is no correlation between the number of victims and the negative performance of US Islamic indices. It all comes down to the media coverage — the broader it is, the deeper the negative impact will be on US Islamic indices.

Overall, Imane and Peillex’s findings suggest that Islamic financiers must increase their efforts to create awareness and educate people on the principles of Islamic finance to avoid the conflation of the industry with Islamist terrorism.

“When public attention to Islamic terrorism is particularly intense, Islamic banks could highlight the absence of any relationship between these acts of terror and Islamic finance. In addition, they might perhaps consider finding a name for their financial products other than ‘Islamic’ to reduce the risk of conflation,” proposes Peillex.

This article first appeared in IFN Volume 16 Issue 02 on the 16th of January 2019


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