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Islamic Mutual Funds’ Financial Performance and International Investment Style:
Evidence from 20 Countries

European Journal of Finance, Forthcoming

37 Pages Posted: 12 Oct 2009 Last revised: 18 Dec 2010

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS)

Hussain Gulzar Rammal

University of Technology Sydney (UTS)

Michael Rezec

Sociovestix Labs - a DFKI spin-off

Date Written: September 17, 2009

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.

Keywords: fund manager learning, home bias, Islamic finance, Islamic mutual funds, responsible investment, three level Carhart model

JEL Classification: C22, F21, G01, G10, G11, G32, Z12

Suggested Citation

Hoepner, Andreas G. F. and Rammal, Hussain Gulzar and Rezec, Michael, Islamic Mutual Funds’ Financial Performance and International Investment Style: Evidence from 20 Countries (September 17, 2009). European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1475037

Andreas G. F. Hoepner (Contact Author)

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

Hussain Gulzar Rammal

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

HOME PAGE: http://www.uts.edu.au/staff/hussain.rammal

Michael Rezec

Sociovestix Labs - a DFKI spin-off

c/o German Research Center for
Artificial Intelligence (DFKI)
Kaiserslautern, 67663
Germany

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