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High-rated ESG (environmental, social, governance) firms do not outperform low-rated ESG firms in international markets. However, ESG-rated firms in general outperform unrated firms after controlling for firm size, book-to-market ratio, momentum, operating profitability, and investment. The following explanations are provided for these observations. First, though higher ESG ratings predict higher operating profitability and lower investments, these positive return-generating firm characteristics are not priced within the universe of ESG-rated firms, causing the insignificant return difference between high-rated and low-rated ESG firms. Second, the positive excess returns of ESG-rated firms over unrated firms reflect price corrections arising from the reversal of investors’ expectation errors concerning the impact of ESG characteristics on the firm’s future fundamental performance and are therefore the outcome of mispricing.

This article comprehensively examines the performance, investment behavior, and co-movement of minimum-volatility, low-volatility, and low-beta strategies in international markets. First, the authors identify the significant overweighting of non-cyclical stocks from the consumer staples and utilities sectors, relative to the market, as one of the main, industry-specific return drivers of all low-risk strategies. Second, minimum-volatility, low-volatility, and low-beta strategies produce similarly substantial and statistically significant CAPM and three-factor model alphas in the segments of developed markets and emerging markets over the complete sample period, before and after the recent financial crisis. However, during the crisis, there was no significant outperformance, though low-risk strategies could keep risk down. All low-risk strategies share general commonalities with small-cap and value strategies, except in the European market, where they resemble growth strategies. Third, minimum-volatility, low-volatility, and low-beta strategies generally exhibit large and significant co-movements across and within markets. The authors do not find compelling evidence that one strategy generally dominates another. They conclude that minimum-volatility, low-volatility, and low-beta strategies are equally beneficial for participating in low-risk investing around the world.

We examine the performance of Islamic equity indices in comparison to their conventional market benchmarks around the world. First, using a variety of alternative performance measures based on, e.g., lower partial moments, drawdown, and value at risk, we document that Islamic indices outperform in developed markets, while they tend to underperform in emerging markets. Second, the style analysis reveals that Islamic indices in developed markets exhibit a strong growth-orientation in their investment behavior, while they show a substantial large cap bias in emerging markets. Finally, the significant overweighting of stocks from the energy and materials sectors relative to the market is identified as one of the main performance drivers of Islamic indices.

In recent years, Islamic investing has emerged as a dynamic and quickly growing segment of the worldwide financial services industry. This article extends the international evidence to a much broader sample of 155 indices around the world. We contribute to the literature in several ways. First, using the Sharpe ratio, the CAPM, and the four-factor model, we find no evidence of an out- or underperformance of Islamic indices. Also, Islamic investing tends to have a growth and positive momentum bias. Both insights reconfirm results of previous studies. Second, we reexamine the performance of Islamic indices in bull and bear markets. Our evidence reverses prior results in the literature employing a different sample period. We interpret the evidence as Islamic screens not affecting unconditional performance through the cycle, but affecting performance conditional on the cycle in a manner which is, however, not easy to forecast. This is the price of Islamic investing bearing an unforeseeable chance or risk depending on the market climate. Third, we analyze the influence of screening methods on the performance of Islamic indices suggesting that there is no significant difference between Islamic screens and their performance.

Low-risk equals low return; high-risk equals high return. That traditional view has been debunked by academic research showing that a portfolio of low-risk stocks outperforms a portfolio of high-risk stocks, particularly in the US equity market. It has led to increasing interest in low-risk investing strategies by risk-averse institutional investors. Does this result hold for all international markets? Which low-risk strategy works best? This article pushes the research forward by investigating different sectors, countries and correlations of three low-risk strategies. In this report, the author offers some useful starting points for international investors. Christian Walkshausl, Associate Professor of Finance at the University of Regensburg in Germany, offers some useful starting points for international investors.