Intertemporal test of beta stationarity performance of Islamic sector structured mutual funds

Abstract

The purpose of this research paper is to examine social Islamic mutual funds' financial performance. Since Islamic mutual funds have only been around for the past two decades, most of the research on this topic is fairly new. In this study we apply the single factor model of Schwert and Seguin (1990) to a sample of Islamic mutual funds. The Islamic mutual funds market is one of the fastest growing sectors within the Islamic financial system. Several studies have investigated the characteristics of individual Islamic mutual funds (see Elfakhani, et al (2006), Elfakhani ,et al (2005. We are not aware of any studies that have applied the Schwert and Seguin methodology to Islamic mutual funds. Such an application is important because it allows for studying the impact of market volatility on the time variation of monthly betas and the corresponding returns. Using the S&P 500 and the FTSE Global Islamic indices on sector structured Islamic mutual funds, our results suggest that the volatility of the market and that of the Islamic mutual funds portfolio behave differently with inter and intra market proxies. There is also evidence that the volatility persistence of each Islamic mutual fund portfolio and its systematic risk are significantly related. Hence, the systematic risks of different portfolios tend to move in a different direction during periods of increased market volatility. As a result, we gain an insight into the return dynamics and the process by which Islamic mutual funds prices are determined.

Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research

“…(), Hayat (), Abderrezak (), Haddad et al . () and Hoepner () find no difference in the performance of Islamic equity funds with other conventional funds or index benchmarks. Others, such as Ferdian and Dewi () and Mansor and Bhatti () even find that Islamic funds perform better.…”

“…16 Typically, the Islamic fund literature uses performance metrics -Sharpe ratios, Jensen's alpha, Treynor indexes, Fama and French and related models, to compare the risk-adjusted returns of funds and testing to see if these are statistically different for Islamic and conventional funds. Recent empirical studies, such as Elfakhani et al (2005), Hayat (2006), Abderrezak (2008), Haddad et al (2009) andHoepner (2011) find no difference in the performance of Islamic equity funds with other conventional funds or index benchmarks. Others, such as Ferdian and Dewi (2007) and Mansor and Bhatti (2011) even find that Islamic funds perform better.…”

Islamic legal methodologies and Shariah screening standards: Application in the Indonesian stock market

“…The research provides insight into the economic consequences of Shariah edicts on Islamic capital markets and identifies the rulings that can be considered advantageous (according to their Shariah compliance and economic performance) to increase the participation of Examples of comparative studies between Islamic and conventional capital markets include Ajmi, Hammoudeh, Nguyen, and Sarafrazi (2014), Al-Khazali, Lean, and Samet (2014), Ashraf (2013), Ashraf and Mohammad (2014), Dewandaru, Rizvi, and Masih (2014), Haddad, Homaifar, Elfakhani, andAhmedov (2009), Hoepner, Rammal, andRezec (2011), Girard (2010), Hammoudeh, Mensi, Reboredo, and, Ho, Rahman, Yusuf, and Zamzamin (2014), Jawadi, Jawadi, and Louhichi (2014), Rizvi, Arshad, and Alam (2015), Shahzad, Ferrer, Ballester, and Umar (2017), and Yilmaz, Sensoy, Ozturk, and Hacihasanoglu (2015). 2 These methods include istihsan (juristic preference), maslahah mursalah (unrestricted interest or benefit), sadd al dhara'i (blocking the means), urf (custom), and istishab (presumption of continuity).…”

“…Examples of comparative studies between Islamic and conventional capital markets include Ajmi, Hammoudeh, Nguyen, and Sarafrazi (), Al‐Khazali, Lean, and Samet (), Ashraf (), Ashraf and Mohammad (), Dewandaru, Rizvi, and Masih (), Haddad, Homaifar, Elfakhani, and Ahmedov (), Hoepner, Rammal, and Rezec (), Hassan and Girard (), Hammoudeh, Mensi, Reboredo, and Nguyen (), Ho, Rahman, Yusuf, and Zamzamin (), Jawadi, Jawadi, and Louhichi (), Rizvi, Arshad, and Alam (), Shahzad, Ferrer, Ballester, and Umar (), and Yilmaz, Sensoy, Ozturk, and Hacihasanoglu ().…”

Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research

“…The main difference between Islamic funds and their conventional counterparts is that managers have a smaller universe of companies to invest in as they are subject to screening out businesses that are not Shariá compliant this includes (religious) screening out of companies that operate in areas prohibitedunder Islamic law and screening out firms that cannot achieve certain financial criteria (for instance, exceeding maximum interest payments on debt deemed permissible).All in all, Islamic fund managers have a more limited investment choice. x Recent empirical studies, such asElfakhani et al (2005),Hayat (2006),Abderrezak (2008),Haddad et al (2009) andHoepner (2011) find no difference in performance of Islamic equity funds with other conventional funds or index benchmarks. Others, such asFerdian and Dewi (2007) andMansor and Bhatti (2011) even find that Islamic funds perform better.…”