Impact of Real Sector Variables on Shari’a Compliant Stock Returns

Shari’a compliant stocks are a recent development under Islamic finance, whereby stocks

are screened through Shari’a compliance filters. This study is conducted to understand

and document the important Real Sector macroeconomic factors contributing in

determining stock prices of Shari’a compliant companies in Pakistan. Our sample

includes all 97 non-financial companies screened by Al-Meezan Investment Management

Ltd, based on financial results of 2009. We have included Six Macroeconomic variables

in addition to market index in our study for ten years period (2001-10). Results identified

Zero real sector variable in pricing, however, with the inclusion of market index in

analysis, the single important variable in pricing of Shari’a compliant securities is market

Beta. Evidence favors CAPM for pricing of securities in local market as market index

captures the risk of macroeconomic variables.