Ethical vs. conventional portfolio selection using stochastic goal programming

Purpose This study aims to evaluate the influence of Shariah principles on portfolio selection through a stochastic goal programming approach, taking into account both financial and non-financial objectives. Design/methodology/approach The model incorporates various random objective functions, including the maximization of overall return and ethical return and the minimization of metrics such as price/earnings per share ratio, market value/book value and the return of non-ethical investments. Data from 60 ethical and conventional financial institutions in the Gulf Cooperation Council economies were gathered for analysis. Findings The proposed model generates an efficient portfolio that fulfills both social (ethical) and financial goals. Originality/value This research presents an investment framework for individuals adhering to Shariah guidelines who seek to invest in the Islamic securities as social and ethical investments. This model assists such investors in strategically allocating their wealth across different securities to achieve maximum profitability while minimizing risk.