Do Islamic and Conventional Indices React Differently to Monetary Policy Surprises?

This paper tests whether Islamic equity indices exhibit systematically different sensitivities to high-frequency monetary policy surprises than their matched conventional benchmarks, and whether any Islamic–conventional wedge is universal or provider-specific. We construct daily return differentials (Islamic minus conventional) in USD total returns, expressed in basis points, for three global index families: FTSE All-World vs FTSE IdealRatings All-World Islamic; MSCI World vs MSCI World Islamic; and S&P Global BMI vs S&P Global BMI Shariah. We regress the differential on orthogonalised FOMC monetary policy surprises and two ECB surprises: a Target component measured around the press release (OIS-1M) and a Forward-Guidance component measured around the press conference (OIS-2Y). Shocks are mapped to close-to-close returns over an event window ([t-1, t, t+1]), with inference based on Newey–West (HAC) standard errors; event-only and ECB “Monetary Event” (ME) robustness checks are reported. Results show significant, opposite-signed announcement-day effects for FTSE and S&P: Islamic indices relatively outperform on Target surprises and underperform on Guidance surprises (larger magnitudes for S&P), while FOMC surprises are not significant. MSCI differentials are weak and inconclusive. Collapsing ECB shocks into ME largely nets out same-day effects, with a modest (t+1) Guidance effect in event-only estimates. The findings are consistent with distinct funding-cost (Target) versus policy-path/term-premium (Guidance) channels and with provider-level composition differences.