Can Social Responsible Investment and Gold be a Good Diversifier for Indonesia Sharia Investors?

Isnaini Nuzula Agustin


The COVID-19 Pandemic persists after the global financial crisis resumption of financial turbulence. This vulnerabilities phenomenon compelled investors to restructure their portfolio by implementing a well-diversification strategy. The Sharia Investment and Environment Social Governance (ESG) Investment are two types of investment that enormously attract investors' interest, partly due to their resilience in times of crisis. This study examines the market integration between Sharia stocks, ESG stocks, and Gold and empirically compares its integration in the period before and during the covid-19 Pandemic. The data used were daily closing prices on two Indonesia Sharia indices, ESG index and Gold price from January 2, 2015, to August 31, 2021. Through Johansen Cointegration, the results ascertain the cointegration among variables, implying limited diversification opportunities among assets in the long run. Vector Error Correction Model found the significant short-term relationship between the Sharia stock index and ESG investment in the pre-pandemic period but turned out to be insignificant during the Pandemic. Further, the finding confirms the Gold's ability as a good diversifier for both assets in the pre-pandemic period. However, during the Pandemic, it suggests that gold can indeed provide diversification gains only for the ESG index. Our results have imperative implications about the asset allocation under portfolio optimization.


Covid19, ESG Investment, Portfolio Diversification, Sharia Stock, Market integration

Full Text:



Aarif, M. B. H., Rafiq, M. R. I., & Wahid, A. N. M. (2021). Do ‘Shariah’ indices surpass conventional indices? A study on Dhaka Stock Exchange. International Journal of Islamic and Middle Eastern Finance and Management, 14(1), 94–113.

Agustin, I. N. (2021). How does the impact of the COVID-19 pandemic on Indonesia ’ s Islamic stock returns ? JEMA 18(1), 21–35.

Akhtaruzzaman, M., Sensoy, A., & Corbet, S. (2019). The influence of Bitcoin on portfolio diversification and design. Finance Research Letters, 101344.

Andersson, E., Hoque, M., Rahman, M. L., Uddin, G. S., & Jayasekera, R. (2020). ESG investment: What do we learn from its interaction with stock, currency and commodity markets? International Journal of Finance and Economics, February, 1–17.

Trabelsi, N. (2019). Dynamic and frequency connectedness across Islamic stock indexes , bonds , crude oil and gold. International Journal of Islamic and Middle Eastern Finance and Management Vol. 12 No. 3, pp. 306-321

Becchetti, L., Ciciretti, R., Dalò, A., & Herzel, S. (2015). Socially responsible and conventional investment funds: performance comparison and the global financial crisis. Applied Economics, 47(25), 2541–2562.

Ben, H., Mezghani, I., & Al, M. (2020). Common shocks , common transmission mechanisms and time- varying connectedness among Dow Jones Islamic stock market indices and global risk factors. Economic Systems, 44(2), 100760.

Delle Foglie, A., & Panetta, I. C. (2020). Islamic stock market versus conventional: Are islamic investing a ‘Safe Haven’ for investors? A systematic literature review. Pacific Basin Finance Journal, 64(May), 101435.

Dewandaru, G., Rizvi, S. A. R., Masih, R., Masih, M., & Alhabshi, S. O. (2014). Stock market co-movements: Islamic versus conventional equity indices with multi-timescales analysis. Economic Systems, 38(4), 553–571.

Erragraguy, E., & Revelli, C. (2015). Should Islamic investors consider SRI criteria in their investment strategies? Finance Research Letters, 14, 11–19.

Granger, C. W. J., & Jji, E. (1988). Concept Of Causality. Journal of Econometrics 39 (1988) 199-211. N39, 199–211.

Hassan, M. K., Aliyu, S., Saiti, B., & Abdul Halim, Z. (2020). A review of Islamic stock market, growth and real-estate finance literature. International Journal of Emerging Markets, 16(7), 1259–1290.

Jain, M., Sharma, G. D., & Srivastava, M. (2019). Can sustainable investment yield better financial returns: A comparative study of ESG indices and MSCI indices. Risks, 7(1).

Jawad, S., Shahzad, H., Mensi, W., & Hammoudeh, S. (2017). Extreme dependence and risk spillovers between oil and Islamic stock markets. Emerging Markets Review.

Jian, Z., & Li, X. (2021). International Review of Financial Analysis Skewness-based market integration : A systemic risk measure across international equity markets. International Review of Financial Analysis, 74(October 2020), 101664.

Johansen, S. (1988). Statistical Analysis for Cointegration Vectors. Journal of Economic Dynamics and Control. 12, 231–254.

Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91 7(1)

Lean, H. H., & Smyth, R. (2013). Stock Market Co-movement in ASEAN and China. In Emerging Markets and the Global Economy: A Handbook (Issue October 2017).

Mensi, W., Hammoudeh, S., Al-Jarrah, I. M. W., Sensoy, A., & Kang, S. H. (2017). Dynamic risk spillovers between gold, oil prices and conventional, sustainability and Islamic equity aggregates and sectors with portfolio implications. Energy Economics, 67, 454–475.

Mohti, W., Dionísio, A., Vieira, I., & Ferreira, P. (2019). Regional and global integration of Asian stock markets. Research in International Business and Finance, 50(May), 357–368.

Naeem, M. A., Qureshi, F., Arif, M., & Balli, F. (2021). Asymmetric relationship between gold and Islamic stocks in bearish, normal and bullish market conditions. Resources Policy, 72(October 2020), 102067.

Nofsinger, J., & Varma, A. (2014). Socially responsible funds and market crises. Journal of Banking and Finance, 48, 180–193.

Ouatik El-Alaoui, A. K., Ismath Bacha, O., Masih, M., & Asutay, M. (2018). Does low leverage minimise the impact of financial shocks? New optimisation strategies using Islamic stock screening for European portfolios. Journal of International Financial Markets, Institutions and Money, 57, 160–184.

Singh, A. (2020). COVID-19 and safer investment bets. Finance Research Letters, 36(August), 101729.

Thomas, T. C., Sankararaman, G., & Suresh, S. (2020). Impact Of Covid-19 Announcements On Nifty Stocks. Journal of Critical Reviews, 7(13), 471–475.

Trisnowati, Y., & Muditomo, A. (2021). COVID-19 and Stock Market Reaction in Indonesia. 22(1). Journal of Accounting and Investment, 22(1), 23-36.

Troster, V., Bouri, E., & Roubaud, D. (2018). A quantile regression analysis of flights-to-safety with implied volatilities. Resources Policy, October, 1–14.

Ur Rehman, R., Zhang, J., Uppal, J., Cullinan, C., & Akram Naseem, M. (2016). Are environmental social governance equity indices a better choice for investors? An Asian perspective. Business Ethics, 25(4), 440–459.

Waheed, R., Sarwar, S., & Khan, M. K. (2020). The impact of COVID-19 on Karachi stock exchange : Quantile- on-quantile approach using secondary and predicted data. Journal of Public Affairs. June, 1–6.

Widarjono, Agus. (2013). Ekonometrika: Pengantar dan Aplikasinya.Yogyakarta: UPP STIM YKPN



  • There are currently no refbacks.

Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0