Religion based investing and illusion of Islamic Alpha and Beta

Bushra Naqvi, S.K.A. Rizvi, Nawazish Mirza, Krishna Reddy
  • Pacific-Basin Finance Journal, February 2018, Elsevier
  • DOI: 10.1016/j.pacfin.2018.02.003

Religion based investing and illusion of Islamic Alpha and Beta

What is it about?

Among the recent literature, that compares the performance of Islamic and conventional mutual funds, two important dimensions have been widely neglected. First, it is possible due to the diverse segments of the market that mutual funds invest in, that the funds' asset classes or investment styles play a role in the performance differential between Islamic and conventional mutual funds. Second, the higher returns and lower risk, the two cornerstones of the perceived superiority of Islamic funds, could possibly be driven by cross-country differences.

Why is it important?

This study fills this void and presents empirical evidence on Islamic mutual funds across multiple investment styles for Malaysia and Pakistan, which collectively hold 31% of the total number of Islamic funds around the world. The results suggest that the notion of a global higher Islamic Alpha and lower Islamic Beta does not exist.

Perspectives

Dr Krishna Reddy
University of Waikato

The superior performance of Islamic mutual funds is no more than an illusion as any differential can be attributed either to the country differences or to a particular investment style.

Dr Krishna Reddy
Toi Ohomai Institute of Technology

Investors in different geographical locations with interests in different investment and equity management styles must take into account of the factors while choosing between Islamic and conventional mutual funds in order to optimize their decision's outcome.

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http://dx.doi.org/10.1016/j.pacfin.2018.02.003

The following have contributed to this page: Dr Krishna Reddy, Dr Krishna Reddy, and Nawazish Mirza