Marketing an Islamic index: perceived value of KMI30 Index

Abstract

PurposeThe purpose of this paper is to understand if there is a customer perceived value for shareholders in investing in Islamic stocks, by using KMI30 index of Karachi Stock Exchange as a case study. The findings are then used to devise a conceptual model, highlighting the value of an Islamic branded index and for companies included on the index for market participants, Shari'ah‐compliant firms, and governments.Design/methodology/approachThis is an exploratory research paper. A detailed literature review is followed by a quantitative analysis of the return series of 18 constituents of the KMI30 index. The analysis looks at performance before and after the launch of the index, to identify if inclusion on the Islamic index has impacted the average returns and volatility of the constituents and if it is considered as value added by the investors.FindingsAnalysis reveals that the KMI30 index is marginally less volatile than the KSE100 index and has relatively better returns, even in the most volatile times at the Karachi Stock Exchange. Most of the constituents under analysis have posted better returns after inclusion on the index, with 40 per cent of them showing less volatility. Though the trends are not clearly visible, there is an indication of increased returns and reduced volatility, both in the Islamic index and its constituents.Research limitations/implicationsThis study is the first step in analyzing if shareholders perceive inclusion of a company on the Islamic index as value added, resulting in increased share prices, better returns, and decreased volatility. Due to the lack of literature on the subject, the nature of the study is exploratory. Further analysis is required to understand if the changes in returns and volatility are due to investor perceptions. This study has implications for the organizations to understand the perception of investors about including companies on the Islamic index. If investors attach value to this proposition then it will be worthwhile for companies to invest resources in making their organization Shari'ah compliant and marketing it from that perspective. Additionally, this study will add to the knowledge of the regulators regarding whether the Islamic index is achieving its objectives of providing investment opportunities to investors offering better returns with less risk, besides being “Halal”.Originality/valueThere is a lack of studies that look at Islamic investments from the marketing perspective. Also, to the best of the authors' knowledge, no studies have analyzed the KMI30 index, either from a finance or marketing perspective. This study is the authors' contribution to the interdisciplinary body of knowledge and ever‐increasing literature on emerging markets in the context of Islamic investments.

Index Informativeness: An Empirical Study on Indonesia Stock Exchange

“…Table 10 shows that in the group of company shares included in the index, a significant positive market reaction only occurred in the group of company shares included in JII, while company shares included in the LQ45 Index and the SRI-Kehati Index did not find any positive market reaction. The positive market reaction to company shares included in JII is in line with the results of Sayani and Balakrishnan's (2013) research which found that there was a positive market return and lower volatility when the company entered into the Islamic Index (KMI30) on the Karachi Stock Exchange.…”

“…Oberndorfer et al (2013) further stated that this implies that investors do not reward (rewarded) companies that have higher social (environmental) performance (which can actually potentially benefit from a better company reputation and cost savings in long-term). Sayani and Balakrishnan (2013) examined the performance of company shares in the KMI30 Index on the Karachi Stock Exchange. The results of his research show that company shares included in the KMI30 Index have a positive market return and a relatively low level of stock volatility when compared to the KSE100 Index.…”

“…Previous studies have tested the market's reaction to the announcement of the entry and exit of company shares in an index. Some researchers conducted tests on several indices for large companies such as the Nasdaq 100 Index (Yu et al, 2015), the S&P Index (Cai, 2007;Hrazdil and Scott, 2009;Jain, 1987;Elliot et al, 2006;Chen et al, 2004;Denis et al, 2003;Kamal et al, 2011;Marciniak, 2012;Marciniak and Smith, 2018), Nikkei Index (Okada et al, 2006), Dow Jones Index (Biktimirov and Xu, 2019), Athens Stock Exchange Index (ASE) (Papachristou et al, 2018), and ethical stock indexes such as Index of sustainability stock categories (Oberndorfer et al, 2013) and Indexes for Islamic stocks (Sayani and Balakrishnan, 2013;Mazouz et al, 2013;. Most of these studies generally find that the market reacts positively (negatively) to company stocks that enter (exit) on an Index.…”

Islamic marketing: A literature review and research agenda

“…IM ethics have a very significant positive influence on brand credibility (Al‐Nashmi & Almamary, 2017), for example—marketers can use halal certification as a brand association in IM (Rajagopal et al., 2011). It is noteworthy that like CB, Islamic brands can assume different personalities: purity, safety, sophistication and righteousness (Ahmed, 2015), marketers can communicate the perceived value of brand to create brand image and brand loyalty which increases the performance of the entire company (Sayani et al., 2013).…”

“…Islamic finance also dominates Muslim marketing literature with works by (Alserhan, 2010b; Fatema et al., 2018; Ireland, 2018; Jamshidi & Hussin, 2016; Ltifi et al., 2016; Mahdzan et al., 2017; Maulan et al., 2016; Sayani et al., 2013; Setyobudi et al., 2016; Wahyuni & Fitriani, 2017; Yeniaras, 2016; Yildiz et al., 2014; Zinser, 2019) publishing works with varied focus, for example—emphasizing customer loyalty (Ireland, 2018; Wahyuni & Fitriani, 2017); consumer behaviour and attitudes towards banking and finacial sector (Fatema et al., 2018; Jamshidi & Hussin, 2016; Ltifi et al., 2016; Mahdzan et al., 2017; Yeniaras, 2016; Yildiz et al., 2014).…”