Downside Beta Modelling for Shariah Compliant, Conventional and Bitcoin Indices as A Proxy for Malaysia

Abstract

The study focuses on establishing the downside beta for Shariah compliant index, conventional index and bitcoin index (a cryptocurrency) in Malaysia. The indices for the Shariah compliant is the FTSE Bursa Malaysia EMAS Shariah (FTFBMS), the conventional index used is the FTSE Bursa Malaysia EMAS (FTFBMEMAS) and the proxy index for the cryptocurrency is the bitcoin. Given the weak track record of cryptocurrencies in Malaysia, the bitcoin is used as a proxy to simulate cryptocurrency behavior in Malaysia. Downside beta for the three portfolios is calculated through the use of historical volatility (HV) and the Exponentially Weighted Moving Average (EWMA) methods. The findings indicate there is a statistically significant difference in downside beta for each of the portfolios, although the difference is very minimal between Shariah compliant index and the conventional index. However, bitcoin poses to be a riskier portfolio with significant difference over both other indices. The low beta for Shariah complaint indices and its conventional counterparts suggests the large market volume the two indices share, still maintaining them as the mainstream financial models. While bitcoin is vastly riskier, it is surely making promising strides as far as financial trading methods are concerned. Moreover, there is great optimism in cryptocurrency models that assimilate moral Islamic trading principles as research has shown Shariah compliant stocks to be more efficient.