Comparative Risk and Return Analysis of Islamic and Conventional Financial Institutions in Pakistan

Saud Ahmed Khan, Muhammad Khaleequzzaman, Muhammad Ishfaq, Shahan Zeb Khan

Abstract


This paper aims to investigate whether the Islamic financial
institutions perform better in terms of risk and return as
compared to conventional financial institutions. To make an
appropriate comparative study comprises banks, mutual funds,
and Modaraba companies from 2006 to 2012. The risk and return
series are oriented from stylized GARCH models and average
return to risk ratio is used for potential comparison. This paper
finds no difference in the performance of Islamic and
conventional banks. However, large banks performed better than
small banks on the basis of an average return to risk ratio. Islamic
mutual funds are found riskier and provide fewer returns as
compared to conventional mutual funds. Further, the
performance of most Modaraba companies is found
unsatisfactory. The study suggests that Islamic financial
institutions need to resolve their liquidity problems, sort out new
investment avenues and focus on developing short financing
instruments. Islamic banks are also required to finance in risk
sharing products other than fixed income.


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Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.