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Islamic Mutual Funds' Financial Performance and Investment Style: Evidence from 20 Countries
Andreas G. F. Hoepner University of St. Andrews - School of Management; Principles for Responsible Investment, United Nations Hussain Gulzar Rammal International Graduate School of Business, University of South Australia Michael Rezec University of St. Andrews - School of Management September 17, 2009 Abstract: We pursue the first large scale investigation of a strongly growing mutual fund type: Islamic funds. Based on unique data access, 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.
Keywords: fund manager learning, Islamic finance, Islamic mutual funds, religious investment, responsible investment, three level Carhart model JEL Classifications: C22, F21, G01, G10, G11, G32, Z12 Working Paper SeriesDate posted: October 12, 2009 ; Last revised: February 04, 2010Suggested CitationContact Information
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