Comparison of ethical and conventional portfolios with second-order stochastic dominance efficiency test

Oktay Tas, Kaya Tokmakcioglu, Umut Ugurlu*, Murat Isiker

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)


Purpose: This paper aims to compare two groups of stocks to analyze the efficiency of an ethical portfolio in comparison with a conventional portfolio. Design/methodology/approach: Efficiency test by second-order stochastic dominance (SSD) approach is applied on two groups, which consist of 12 stocks. Ethical portfolio is chosen from the stocks complying with the participation banking rules. Conventional portfolio is selected from Borsa Istanbul (BIST) with choosing the corresponding stocks for each ethical stock according to the sector and market capitalization. All the stocks of both groups are pairwise SSD compared. Findings: Both groups of 12 stocks are inefficient portfolios; however, a group of 7 stocks constitute an efficient ethical portfolio with the total weight of 50.82 per cent among the set of 12 ethical stocks. On the other hand, a group of 6 stocks constitute an efficient conventional portfolio, with the total weight of 45.16 per cent among the set of 12 conventional stocks. By pairwise SSD comparison of corresponding stocks from both groups, despite none of the conventional stocks dominate ethical stocks, four ethical stocks dominated the conventional ones. Originality/value: Back-testing and comparison with benchmark BIST 100 Index have been done for the selected portfolios. According to back-testing results, groups of SSD efficient stocks outperformed the groups, from which they were selected. Furthermore, both SSD efficient portfolios have higher returns than benchmark index, BIST 100.

Original languageEnglish
Pages (from-to)492-511
Number of pages20
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
Issue number4
Publication statusPublished - 2016

Bibliographical note

Publisher Copyright:
© 2016, © Emerald Group Publishing Limited.


  • Back-testing
  • Ethical investment
  • Portfolio efficiency
  • Second-order stochastic dominance


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