Risk and Return Characteristics of Islamic Equity Funds
Universite du Luxembourg - School of Finance; Emory University - Goizueta Business School
VU University Amsterdam - Department of Economics
December 26, 2008
Emerging Markets Review, Vol. 12, No. 2, 2011
Islamic equity funds (IEFs) differ fundamentally from conventional equity funds since Muslims are prohibited to invest in certain companies/sectors and pay or receive interest. This paper analyzes the risk and return characteristics of a sample of 145 IEFs over the period 2000 to 2009. Our results show that IEFs are underperformers compared to Islamic as well as to conventional equity benchmarks. This underperformance seems to have increased during the recent financial crisis. We also find that IEF managers are bad market timers. They try to time the market, but in doing so, reduce the return rather than increasing it. An important implication of our results is that Muslim investors might improve their performance by investing in index tracking funds or ETFs rather than to invest in individual IEFs.
Number of Pages in PDF File: 28
Keywords: Islamic equity funds; risk-return characteristics; alternative investments; ethical investing; Islamic finance
JEL Classification: G11Accepted Paper Series
Date posted: December 27, 2008 ; Last revised: June 24, 2011
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