In this paper we study the role of contract limitations on the performance of Islamic banks, in contrast to the role of\r\nasset limitations, invoked by Derigs and Marzban [1] to explain why Shariaâ��a-compliant strategies result in much lower\r\nportfolio performance than do the conventional strategies. Their results were, however, challenged in recent empirical\r\npaper by Walksh�¤usl and Lobe [2], who argued asset limitation even sometimes, is beneficial. The reason may be\r\nthat they prevent excessive risk taking by the managers. Contract limitations provide a more nuanced explanation of\r\nperformance of Islamic banks, and can explain why Islamic indexes seem to underperform in emergent, rather than\r\ndeveloped markets, as documented by Walksh�¤usl and Lobe [3].
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