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Are religious investors financially smart? evidence from equity funds

Author

Listed:
  • Murat Yaş

    (Marmara University)

  • Ahmet Faruk Aysan

    (Hamad Bin Khalifa University)

  • Mohamed Eskandar Shah Mohd Rasid

    (INCEIF)

Abstract

Using a dataset of 91 Islamic and 78 conventional funds from 2007 to 2016, this study analyzes the flow–return relation of Islamic and conventional funds in Malaysia. We find that the fund flow–return relation for Islamic funds is positive and stronger than that of conventional funds for positive performers. Moreover, Islamic funds still attract fund flows, while conventional funds experience capital outflow during a negative performance. Besides, this study is unique by its attempt to capture the effect of the month of Ramadan on the flow–performance relation of Islamic and conventional funds in Malaysia. Fund outflows of conventional funds increase during the month of Ramadan, though it does not affect the direction of money-flows either in or out of an Islamic fund. These findings reflect the limited choice availability and significance of religion for Muslim investors. Furthermore, to have an in-depth understanding of the smart-money effect, this study also examines the impact of relative performance on money-flows. Interestingly, the findings show that not only the top and bottom performers of Islamic funds attract larger money inflows and but also suffer larger money outflows than their conventional counterparts. Overall, this paper provides strong evidence that investors consider Islamic and conventional financial assets as different asset classes, and given religious restrictions, investors of Islamic funds act financially smarter than those of conventional funds.

Suggested Citation

  • Murat Yaş & Ahmet Faruk Aysan & Mohamed Eskandar Shah Mohd Rasid, 2022. "Are religious investors financially smart? evidence from equity funds," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 33-45, February.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:1:d:10.1057_s41260-021-00240-2
    DOI: 10.1057/s41260-021-00240-2
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    More about this item

    Keywords

    Mutual funds; Islamic funds; Fund flow–performance relationship; Ramadan effect;
    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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