Relative Strength Index (RSI) is one of the technical trading strategies that could help investors time their investment. This study mainly focuses on shariah and conventional stock portfolio formation for individual investors following the RSI indicator. This research aims to establish the RSI indicator and compare the performance of Islamic and conventional stock portfolios in the Malaysian market with their respective benchmark. Utilizing data collected from January 2015 until December 2019, RSI (14, 30/70) rule has been used for this study. The expected return, risk, Sharpe ratio, Jensen Alpha, and Treynor ratio were calculated for the performance analysis. The empirical results from the Malaysian market show that the RSI indicator generates a greater excess return for both shariah-compliant and conventional portfolios. Even though the return for a shariah-compliant portfolio is lower than the conventional counterpart, this strategy is still worth considering for shariah investors as it will provide a superior return as compared to the market benchmark. Although RSI is an excellent analytical tool, combining fundamental research with other technical analysis approaches can yield better results.
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31 October 2022
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Khairudin, S., Elias, S. M., Kamil, K. H., & Ahmad Chukari, N. (2022). Application Of Relative Strength Index Oscillator For Equity Portfolio Construction In Malaysia. In H. H. Kamaruddin, T. D. N. M. Kamaruddin, T. D. N. S. Yaacob, M. A. M. Kamal, & K. F. Ne'matullah (Eds.), Reimagining Resilient Sustainability: An Integrated Effort in Research, Practices & Education, vol 3. European Proceedings of Multidisciplinary Sciences (pp. 33-43). European Publisher. https://doi.org/10.15405/epms.2022.10.4