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Comparative risk adjusted performance of Islamic, socially responsible and conventional funds: Evidence from United Kingdom

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  • Reddy, Krishna
  • Mirza, Nawazish
  • Naqvi, Bushra
  • Fu, Mingli

Abstract

This study investigates the risk and return characteristics of Islamic funds in comparison with SRI and the conventional open-end mutual funds for the UK, which, having attracted over £11.7 billion in Islamic investment in the past decade has emerged as the largest financial market for Islamic funds in the west. In addition, contrasting with previous literature, this research categorizes SRI and Islamic funds into two distinct types in order to allow a fair comparison. Our findings demonstrate that Islamic and SRI funds in general perform close to the conventional funds with significantly better risk-return tradeoff in US focused funds. Results further indicate that the UK-based Islamic and SRI funds were less effected during financial crisis as the magnitude of loss was significantly lower for them when compared to conventional funds. The research suggests that Islamic and SRI funds do provide a rational substitute and investors can benefit from investing in these funds as ethic and faith-based screening criteria do not affect the returns of Islamic and SRI funds adversely. This was also substantiated by our findings on investment behavior of these funds.

Suggested Citation

  • Reddy, Krishna & Mirza, Nawazish & Naqvi, Bushra & Fu, Mingli, 2017. "Comparative risk adjusted performance of Islamic, socially responsible and conventional funds: Evidence from United Kingdom," Economic Modelling, Elsevier, vol. 66(C), pages 233-243.
    • Handle: RePEc:eee:ecmode:v:66:y:2017:i:c:p:233-243
    DOI: 10.1016/j.econmod.2017.07.007
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    More about this item

    Keywords

    Risk adjusted performance; Mutual Funds; Islamic funds; Socially responsible funds;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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