Coskewness in Islamic, Socially Responsible and Conventional Mutual Funds: An Asset Pricing Test

International Journal of Business and Society, Vol. 18 S1, 2017, 23-44

Fox School of Business Research Paper No. 17-018

22 Pages Posted: 3 Apr 2017 Last revised: 9 Sep 2017

See all articles by Abul Hassan

Abul Hassan

King Fahd University of Petroleum and Minerals

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

J. Rubio

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering

Bora Ozkan

Temple University Fox School of Business

Hesham Merdad

King Fahd University of Petroleum & Minerals (KFUPM)

Date Written: March 31, 2017

Abstract

Intuition suggests that constraint investment strategies will result in losses due to a limited portfolio allocation. Two types of constrained assets have been particularly growing over the last few decades: Islamic Mutual Funds and Socially Responsible Mutual Funds. Although research regarding the performance of these types of constrained investments has been performed, little attention has been given to their relative performance. In this paper we assess, and rank, the relative performance of Islamic, Socially Responsible, and conventional mutual funds from 11 Islamic markets and the United States by expanding the traditional mean-variance frontier to account for higher moments; constrained assets tend to be smaller and skewed in nature, thus violating the normality assumption under the mean-variance frontier. We find that controlling for skewness risk, by using an unconditional coskewness measure, has the power to improve asset pricing tests by expanding the mean-variance frontier specification. We find supporting evidence suggesting that Islamic mutual funds perform better than Socially Responsible Investing, which in turn outperform conventional mutual funds.

Keywords: Mutual Funds, Performance, Coskewness, Risk Factors, Risk Premia, Islamic Funds, SRI, Socially Responsible Investing, Ethical Investing, International Finance

JEL Classification: G11, G12, G15, G19

Suggested Citation

Hassan, Abul and Hassan, M. Kabir and Rubio, J. and Ozkan, Bora and Merdad, Hesham, Coskewness in Islamic, Socially Responsible and Conventional Mutual Funds: An Asset Pricing Test (March 31, 2017). International Journal of Business and Society, Vol. 18 S1, 2017, 23-44, Fox School of Business Research Paper No. 17-018, Available at SSRN: https://ssrn.com/abstract=2944318 or http://dx.doi.org/10.2139/ssrn.2944318

Abul Hassan

King Fahd University of Petroleum and Minerals ( email )

KFUPM CAMPUS
Dhahran, 31261
Saudi Arabia
00966556103670 (Phone)

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

J. Rubio (Contact Author)

NYU Polytechnic School of Engineering - Department of Finance and Risk Engineering ( email )

Brooklyn, NY 11201
United States

Bora Ozkan

Temple University Fox School of Business ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-8409 (Phone)

Hesham Merdad

King Fahd University of Petroleum & Minerals (KFUPM) ( email )

Dhahran, 31261
Saudi Arabia

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