Integrating Sharia Principles into Portfolio Optimization: Empirical Evidence from the Indonesian Islamic Capital Market

Sisca Debyola Widuhung, Zul Karnen, Yatimin Yatimin

Abstract


Objectives: This study aims to analyze the influence of Sharia values in the portfolio optimization process and evaluate their specific contribution to risk and return within the Indonesian Sharia capital market.
Methodology: This research used a quantitative approach with a descriptive-associative design. Analyze secondary data (stock prices and financial statements) from companies in the Jakarta Islamic Index (JII) for the 2018–2024 period. The analysis combined the Markowitz portfolio optimization method with multiple linear regression to test the impact of Sharia compliance on performance.
Findings: Integrating Sharia values enhances portfolio efficiency, evidenced by higher Sharpe ratios and lower risk levels (11.80% vs 13.50% in traditional models). Furthermore, the regression analysis showed that the Sharia compliance score has a positive and significant impact on portfolio returns, with a coefficient of 0.031 and a p-value of 0.011.
Conclusion: Applying Sharia values to portfolio optimization is an adaptive and strategic approach that makes portfolios not only ethical but also financially competitive. The study concludes that Sharia principles serve as a tool for risk mitigation and enhance long-term investment sustainability.


Keywords


: Sharia Capital Market; Sharia Values; Portfolio Optimization; Investment Efficiency; Jakarta Islamic Index

Full Text:

PDF

References


Arifin, S., & Qizam, I. (2021). Quantitative Sharia-screening effect on portfolio performance and volatility: evidence from Indonesia. Global Review of Islamic Economics and Business, 9(1), 43–63. https://doi.org/10.14421/grieb.2021.091-04

Asl, M. G., Rashidi, M. M., Tavakkoli, H. R., & Rezgui, H. (2024). Does Islamic investing modify portfolio performance? Time-varying optimization strategies for conventional and Shariah energy-ESG-utilities portfolio. The Quarterly Review of Economics and Finance, 94, 37–57.

Aziz, N. I. M. (2025). The Effect of Quantitative Shariah-screening on Portfolio Performance in Malaysia. Journal of Islamic Finance, 14(1), 1–13.

Bayram, K., Shahwan, S. B., & Ergun, H. (2023). Managing shariah non-compliance risk: construction of a low-risk shariah-compliant portfolio using the black-litterman portfolio optimization model. Al Qasimia University Journal of Islamic Economics, 3(1), 49–80.

Boudt, K., Raza, M. W., & Wauters, M. (2019). Evaluating the Shariah-compliance of equity portfolios: The weighting method matters. International Review of Financial Analysis, 63, 406–417.

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, 101435.

El Kharrim, M. (2024). Quantitative framework for shariah-compliant multi-period fuzzy portfolio optimization: a sustainable approach to ethical investing. Journal of Islamic Accounting and Business Research. https://doi.org/10.1016/j.jbef.2019.100313

El Melki, A., & Ben Salah Saidi, H. (2023). Ethical and Socially Responsible Investments in the Islamic Banking Firms: Heart, Mind, and Money: Religious Believes and Financial Decision-Making in the Participatory Financing Contracts: Charitable Donation Announcement Effect on Agents’ Level of Effort and Commitment. In Green Finance Instruments, FinTech, and Investment Strategies: Sustainable Portfolio Management in the Post-COVID Era (pp. 81–123). Springer International Publishing.

Hassan, A. (2016). Islamic ethical responsibilities for business and sustainable development. Humanomics, 32(1), 80–94. https://doi.org/10.1108/H-01-2015-0001

Kato, T. (2022). Islamic and capitalist economies: Comparison using econophysics models of wealth exchange and redistribution. PLoS One, 17(9), e0275113.

Lim, D. T., Goh, K. W., & Sim, Y. W. (2023). A review on portfolio optimization models for Islamic finance. Applied Mathematics for Modern Challenges, 8(5). https://doi.org/10.3934/math.2023523

Mirza, N., Tudor, C. D., Horobet, A., & Belascu, L. (2025). Optimizing global risk-conscious portfolios: the strategic role of Sharia-compliant and ESG investments. Sustainability Accounting, Management and Policy Journal. https://doi.org/10.1108/SAMPJ-08-2024-0879

Muchlis, M., & Habbe, H. (2021). Exploring Sharia Screening Review in Islamic Capital Market in Indonesia (Jakarta Islamic Index). LAA MAISYIR: Jurnal Ekonomi Islam, 40–54. https://doi.org/10.24252/lamaisyir.v8i1.20320

Mursyid, M., Kusuma, H., Tohirin, A., & Sriyana, J. (2021). Performance analysis of islamic banks in Indonesia: the maqashid shariah approach. The Journal of Asian Finance, Economics and Business, 8(3), 307–318. https://doi.org/10.13106/jafeb.2021.vol8.no3.0307

Norchaevna, N. S. (2024). Islamic Finance: Principles, Governance, Sustainability and Investment Insights. European Journal of Management, Economics and Business, 1(3), 206–216. https://doi.org/10.59324/ejmeb.2024.1(3).17

Pranata, S. P. (2022). The Influence of Lecturer Competence, Lecturer Creativity, and Utilization of E-Learning Media (E-MTU) on Student Understanding at Universitas Mahkota Tricom …. Enrichment: Journal of Management. https://doi.org/https://doi.org/10.35335/enrichment.v12i2.564

Pranata, S. P., & Husain, H. (2022). Pembuatan mural Islami sebagai sarana edukasi pada Pesantren Taruna Alqolam. NUSANTARA Jurnal Pengabdian Kepada …. https://doi.org/https://doi.org/10.55606/nusantara.v2i1.2695

Qudratullah, M. F., Hanafi, S. M., & Sunaryati, S. (2025). Portfolio Optimization using Shariah-Compliant Asset Pricing Model in Indonesia. JTAM (Jurnal Teori Dan Aplikasi Matematika), 9(2), 507–522.

Raza, M. W., & Ye, J. (2025). Beyond Sharpe ratio: comparison of risk-adjusted performance of Shariah-compliant and conventional indices. International Journal of Islamic and Middle Eastern Finance and Management, 18(1), 184–200.

Ryandono, M. N. H., Wijayanti, I., Wardhana, A. K., Imron, M. A., & Miraj, D. A. (2025). Stock Market Valuation in Sharia Compliance Lens: An Evaluation of the Intrinsic Value of Sharia-Compliant Stocks. Journal of Posthumanism, 5(2), 1248–1265. https://doi.org/10.63332/joph.v5i2.500

Sandwick, J. A., & Collazzo, P. (2021). Modern portfolio theory with sharia: a comparative analysis. Journal of Asset Management, 22(1), 30–42. https://doi.org/10.1057/s41260-020-00187-w

Shahariman, A. A. Bin, Asari, N. A. M. Bin, Sulaiman, N. A. A. A. Bin, & Marzuki, N. A. A. Bin. (2024). Islamic Principles And Their Application In Personal Financial Decision Making.

Sivanandan, P., & Ahmad, R. (2025). Ethical Investment in Islamic Finance: The Role of ESG Toward Sustainable Growth. In Islamic Finance and Corporate Governance: Synergies for Sustainable Growth (pp. 43–56). Emerald Publishing Limited.

Sugianto, S., & Malasyi, S. (2024). The Implementation of Investment Risk Management in Sharia Capital Market. Economit Journal: Scientific Journal of Accountancy, Management and Finance, 4(1), 7–12.

Tanin, T. I., Ahmad, A. U. F., & Muneeza, A. (2023). Shariah-compliant equities and Shariah screening: need for convergence of ethical screening of stocks with Shariah screening. International Journal of Emerging Markets, 18(2), 296–315.

Wahab, M. Z. B. H., Mohamed Naim, A., & Abu Hassan, M. H. (2024). Developing Islamic-sustainable and responsible investment (i-SRI) criteria based on the environmental, social and governance (ESG) concept. Journal of Islamic Accounting and Business Research.

Yesuf, A. J., & Aassouli, D. (2020). Exploring synergies and performance evaluation between Islamic funds and socially responsible investment (SRIs) in light of the Sustainable Development Goals (SDGs). Heliyon, 6(8). https://doi.org/10.1016/j.heliyon.2020.e05351




DOI: http://dx.doi.org/10.22441/jurnal_mix.2026.v16i1.009

Refbacks

  • There are currently no refbacks.