Using Regime-Switching Models To Compare Shariah And Non-Shariah Compliant Stocks For Portfolio Optimization Of Risk Appetite Discriminated Investors: Evidence Of Fertilizer Companies Listed In Pakistan Stock Exchange

The objective of this study is to compare the performance of Shariah-compliant and non-Shariah-compliant companies in the Pakistan Stock Exchange (PSX) listed fertilizers business, using regime-switching models to maximize the value of investors' portfolios. In six listed fertilizer companies in PSX, there are three Shariah-compliant companies and three non-Shariah-compliant companies, which are identified through the Karachi Meezan Index semi-annual review from 2015 to 2021.

The research period from 18 November 2015 to 30 June 2021 is classified into two sections: out-sample and in-sample, and is completely described by the existence of unpredictability related to bear and bull stages. The regime-switching model is used continuously during the out-sample time period in order to make forecasts on the cumulative wealth of investment. The accumulated value of each investment is tracked and analyzed on a daily basis through a series of checks and studies.

The cumulative daily wealth of risk-appetite-discriminated investors (RA, RN, and RT investors) in Shariah-compliant stocks (SC), as calculated by RSM, is greater than that of investors in non-Shariah-compliant fertilizer firms. Investors, traders, regulators, and policymakers should take note of the findings.

This study is helpful for all investors, regardless of their behavior, to compare their portfolios and, if necessary, transfer to a new regime. As an outcome of this, this study is also beneficial for investors in determining whether or not to invest in fertilizer companies in Pakistan that comply with Shariah or do not comply with Shariah.

This study is significant because it pays attention to the problem of risk-appetite investors trying to maximize their portfolio wealth. Technical analysis investigates this problem by employing different models in the developing market's SC and NSC companies. This attention to the problem is what gives this study its distinctive quality.