Islamic versus Conventional Mutual Funds Performance in Saudi Arabia: A Case Study

JKAU: Islamic Econ., Vol. 23, No. 2, pp: 157-193 (2010)

37 Pages Posted: 31 Oct 2018

See all articles by Hesham Merdad

Hesham Merdad

King Fahd University of Petroleum & Minerals (KFUPM)

M. Kabir Hassan

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

Yasser Alhenawi

University of Evansville

Date Written: 2010

Abstract

Using a sample of Islamic and conventional mutual funds managed by HSBC, the fourth largest fund manager in Saudi Arabia, from January 2003 to January 2010, we examine their risk-return behavior by employing a number of performance measures such as Sharpe, Treynor, Jensen Alpha and their variants. We divide the sample period in four segments such as full period, bull period, bearish period and financial crisis period to analyze further if these two funds performance differ from each other. We also examine the market timing and selectivity of HSBC managers of their portfolio performance. We find that Islamic funds underperform Conventional funds during full period and bullish period, but they overperform conventional funds during bearish and financial crisis period. Such results are consistent with prior studies with other Islamic and conventional mutual funds. HSBC managers are good at showing timing and selectivity for Islamic funds during bearish period, and for conventional funds during bullish period. One important portfolio lesson from this case study is that Islamic mutual funds do offer hedging opportunity for investors during economic downturns because of the restrictions that Islamic law imposes on portfolio selection.

Keywords: mutual funds, portfolio, risk-return behavior, islamic mutual funds, bullish, bearish

Suggested Citation

Merdad, Hesham and Hassan, M. Kabir and Alhenawi, Yasser, Islamic versus Conventional Mutual Funds Performance in Saudi Arabia: A Case Study (2010). JKAU: Islamic Econ., Vol. 23, No. 2, pp: 157-193 (2010), Available at SSRN: https://ssrn.com/abstract=3263046

Hesham Merdad

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

Dhahran, 31261
Saudi Arabia

M. Kabir Hassan (Contact Author)

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

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Yasser Alhenawi

University of Evansville ( email )

Evansville, IN 47722
United States

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