Descriptive Statistics for the Dependent Variables

Table 4 panels B and C report the descriptive statistics results for all Islamic and conventional portfolios (dependent variables), respectively. In each panel, averages of monthly value-weighed excess return, size, and book-to-market equity portfolios are reported along with averages of monthly number of firms in each portfolio. The average excess return results for both portfolios, Islamic (left-hand side of panel B) and conventional (left-hand side of panel C), are considered the range of cross-sectional average returns that risk premiums for common risk factors in returns (independent variables) are attempting to explain in the time-series regressions.

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Table 4 Continued

Dependent variables: portfolios sorted based on Shariah compliance (Islamic and conventional), size (small and big), and book-to-market equity (high and low)

Panel B: Islamic Portfolios

Averages of monthly value-weighted excess return portfolios Averages of monthly value-weighted size and book-to-market (BM) portfolios

and averages of monthly number of firms in each portfolio Size Quintile

Book-to-Market Equity Quintiles

Size Quintile

Book-to-Market Equity Quintiles

Low High Low High Low High Low High Low High Low High

Means Std t(mean) Size (Thousands of SAR) BM Firms

Small 2.160% 2.290% 13.30% 14.20% 1.621 1.613 Small 889,224.7 887,740.6 1.0360 3.3540 8.410 7.850

Big 2.110% 1.770% 14.20% 9.990% 1.489 1.768* Big 41,572,233.1 13,216,526.8 0.7260 2.3370 8.270 7.810 *, **, *** significant at 10%, 5%, 1%, respectively

Panel C: Conventional Portfolios

Averages of monthly value-weighted excess return portfolios Averages of monthly value-weighted size and book-to-market (BM) portfolios

and averages of monthly number of firms in each portfolio Size Quintile

Book-to-Market Equity Quintiles

Size Quintile

Book-to-Market Equity Quintiles

Low High Low High Low High Low High Low High Low High

Means Std t(mean) Size (Thousands of SAR) BM Firms

Small 2.210% 3.240% 15.40% 14.80% 1.435 2.186** Small 851,981.4 916,841.7 1.3010 2.9870 15.30 15.150

Big 1.240% 1.80% 9.210% 8.990% 1.351 1.998** Big 118,092,960.6 22,343,710.7 1.0640 2.1740 14.740 16.510 *, **, *** significant at 10%, 5%, 1%, respectively

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The results confirm findings of previous studies that there is a negative relationship between size and average return. That is, the results indicate that average excess return decreases with size in both book-to-market equity quintiles for both Islamic and conventional portfolios. For example, when moving from the small to the big quintile under the low quintile, average excess return decreases from 2.16 to 2.11 percent per month for Islamic portfolios (panel B) and from 2.21 to 1.24 percent per month for conventional portfolios (panel C). Also, when moving from the small to the big quintile under the high quintile, average excess return decreases from 2.29 to 1.77 percent per month for Islamic portfolios (panel B) and from 3.24 to 1.8 percent per month for conventional portfolios (panel C).

The results, in general, also confirm findings of previous studies that there is a positive relationship between book-to-market equity and average returns. That is, the results indicate that average excess return increases with book-to-market equity in both size quintiles for both Islamic and conventional portfolios except for the big-Islamic portfolio. For example, when moving from the low to the high book-to-market equity quintile under the small quintile, average excess return increases from 2.16 to 2.29 percent per month for Islamic portfolios (panel B) and from 2.21 to 3.24 percent per month for conventional portfolios (panel C). Also, when moving from the low to the high book-to- market equity quintile under the big quintile, average excess return increases from 1.24 to 1.80 percent per month for conventional portfolios (panel C); but decreases from 2.11 to 1.77 percent per month for Islamic portfolios (panel B).

Looking at the left-hand side of both panels B and C, the results show that the average excess return decreases when moving from conventional (panel C) to Islamic

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(panel B) stock portfolios, regardless of the size and book-to-market equity orientations of these portfolios. The results indicate that the monthly average excess return decreases from: 1) 2.21 to 2.16 percent when moving from CSL to ISL; 2) 3.24 to 2.29 percent when moving from CSH to ISH; and 3) 1.80 to 1.77 percent when moving from CBH to IBH. These results are very much consistent with other previously obtained results and provide additional evidence that supports the hypothesis of a negative Islamic-effect in Saudi Stock returns, at least during the period from January 2003 to April 2011. However, there is one exception to the above results. That is, the average excess return increases from 1.24 to 2.11 when moving from the CBL to IBL.

Note that the hypothesis of zero-means cannot be rejected for five out of eight portfolios (ISL, ISH, IBL, CSL, and CBL). These results are not surprising given that stock returns are very volatile (high standard deviations that are around 14 percent per month). The good news is that such results will not have an adverse affect on the power of the asset-pricing tests. This is because, as shown in (Table 7), the created common risk factors in returns are going to absorb most of the variation in stock returns, and therefore the asset-pricing tests on the intercepts in the time-series regressions are going to show that all intercepts are indistinguishable from zero. In other words, the model is well specified.

Looking at the right-hand side of panels B and C in (Table 4), the results show that averages for size-portfolios range from SAR 887.7 million (around USD 236.7 million) to SAR 41.6 billion (around USD 11.1 billion) for Islamic portfolios (panel B); and from SAR 852 million (around USD 227.2 million) to SAR 118.1 billion (around USD 31.5 billion) for conventional portfolios (panel C). Furthermore, the results show that averages for book-to- market equity portfolios range from 0.726 to 3.354 for Islamic portfolios (panel B); and

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from 1.064 to 2.987 for conventional portfolios (panel C). Finally, results show that averages of monthly number of firms in the Islamic portfolios (panel B) range from 7.81 to 8.41, whereas, that range is around 14.74 to 16.51 in the conventional portfolios (panel C).