International asset allocation using the market implied cost of capital

Bielstein, Patrick

doi:10.1007/s11408-017-0302-3

Cited by 3 publications

(2 citation statements)

References 62 publications

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“…BL model demonstrated a higher SR than the MV model. These results are in accordance with findings on BL performance from Bessler and Wolff (2013) and Bielstein(2018).…”

Section: Shariahcompliant Asset Pricing Modelsupporting

confidence: 92%

“…One of the models proposed to overcome this weakness is the Black–Litterman (BL) model (Black and Litterman, 1991, 1992). Empirical analysis displays the benefit of the BL model in obtaining a higher Sharpe ratio (SR; Bessler and Wolff, 2013; Bielstein, 2018). The BL model for portfolios with Shariah stocks has improved performance (Widodo et al , 2017).…”

Section: Introductionmentioning

confidence: 99%

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Toward the Black–Litterman with Shariah-compliant asset pricing model: a case study on the Indonesian stock market during the COVID-19 pandemic

Subekti

Abdurakhman

Rosadi

2022

IMEFM

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Purpose This research aims to demonstrate portfolio modeling, which leads to Sharia compliance in encountering crises because of COVID-19. The authors proposed modifying the Black–Litterman (BL) model adapted to the Sharia principle. The implementation of BL on Shariah-compliant stock data with capital asset pricing model (CAPM) requires adjustment because of the interest rate in the calculation. Thus, the objective of this study is to develop and evaluate the modified BL for Shariah-compliant stock portfolios in the financial crisis caused by the COVID-19 pandemic. Design/methodology/approach The Sharia-compliant asset pricing model (SCAPM) with the inflation rate was regarded as the new starting point in the BL model. This proposed model was implemented in Indonesia using monthly returns from the Jakarta Islamic Index (JII) list collected from February 2014 to June 2019. Furthermore, the portfolio performance of BL-SCAPM was compared with two reference portfolios, the mean-variance method and BL-CAPM. Findings The result presents that the portfolio performance of BL-SCAPM outperformed the MV and BL-CAPM. The impact of the Sharpe ratio of BL-SCAPM was more significant than the reference portfolio. The equal benefit was procured from both portfolios in July and August 2019. After the COVID-19 outbreak was officially declared in January 2020, the performance of BL-SCAPM was still above the BL. Despite a decline in portfolio value before and during the outbreak, the reference portfolio losses were higher than those of BL-SCAPM. Hence, this study manifested that BL-SCAPM outperformed the reference portfolio. Practical implications The results illustrate the empirical study which can be implemented for the Shariah-compliant stock market in Indonesia. By evaluating portfolio value on the COVID crisis for long investment, replacing CAPM with SCAPM in the BL model can transform the asset proportion. It decreased the portfolio loss during the crisis. Future research can be developed more from the open problems in this implementation to deliver the portfolio model into the Shariah framework with varied SCAPM in BL. Originality/value The attention to BL studies on portfolio building with Sharia-compliant stocks is rarely focused on the Islamic perspective. Hence, the novelty of this research is the idea of modifying the BL model with a Shariah starting point. More generally, this research enriches Shariah financial literacy regarding the stock market and, specifically, its implementation in the Indonesian stock market.

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“…BL model demonstrated a higher SR than the MV model. These results are in accordance with findings on BL performance from Bessler and Wolff (2013) and Bielstein(2018).…”

Section: Shariahcompliant Asset Pricing Modelsupporting

confidence: 92%