Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries

Abstract

We pursue the first large scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias adjusted dataset, we analyse the financial performance and investment style of 265 Islamic equity funds from twenty countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds' investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

Halal Certification for Financial Products: A Transaction Cost Perspective

“…Since IEFs are only allowed to invest in stocks with low leverage, they might favor growth stocks (e.g. Hoepner et al, 2011) and low beta stocks (e.g. Hayat and Kraeussl, 2011).…”

“…IEFs have become very popular among Muslim investors in recent years, even though they have been found to underperform the Islamic market in many cases (e.g. Hayat and Kraeussl, 2011;Hoepner et al, 2011).…”

Halal Certification for Financial Products: A Transaction Cost Perspective

“…In terms of size it is a relatively modest market, but it has been growing very fast (15 percent per year) for a number of years (Khan, 2010). Banking assets are estimated to be USD 1 trillion in 2010 (Shanmugam and Zahiri, 2009;Hoepner et al 2011) and with a potential market of more than a billion Muslims worldwide these assets are expected to continue growing.…”

“…Khan, 2010) and investing (e.g. Hayat and Kraeussl, 2011;Hoepner, Rammal and Rezec, 2011) is also on the rise. However it seems that the market for halal certification obtained very limited attention in the analysis of economics institutions, which is odd, since halal certification is the key feature that separates Islamic from conventional finance.…”

Performance and Persistence Tests of Islamic Market Indices

“…The first is that the filters used by Islamic Finance for the selection of companies result in a lack of diversification, leading to underperformance in accordance with financial theory [23]. The second reason is that the exclusion concerns those companies belonging to illegal sectors that are considered to be the most resilient in recessionproof [24][25][26][27][28][29][30][31][32][33][34][35][36][37][38][39].…”