A Five-Factor Asset Pricing Model of Shariah Compliant Firms in the United States

Shariah compliant firms operating in an environment with little to no access a robust Islamic capital market (such as the United States (US) stock market) will exhibit consistent bias towards certain corporate financial behaviour. Does this subsequently lead skewed asset pricing behaviour? To answer question, paper investigates behaviour of multiple samples listed US compared overall conventional sample by employing Fama & French Five-Factor Model. By applying contemporary screening methodology on all stocks NYSE, NASDAQ and IEX from January 2000 December 2019, shows that differs not only between samples, but also amongst themselves. Ultimately, when deriving appropriate expected return for portfolios US, there are evidence suggest model is more suitable traditional Capital Asset Pricing Model (CAPM) since additional risk premiums show significance across groups firms.