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Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries

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  • Andreas G.F. Hoepner
  • Hussain G. Rammal
  • Michael Rezec
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    Abstract

    We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

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    File URL: http://hdl.handle.net/10.1080/1351847X.2010.538521
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 17 (2011)
    Issue (Month): 9-10 (November)
    Pages: 829-850

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    Handle: RePEc:taf:eurjfi:v:17:y:2011:i:9-10:p:829-850

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    Web page: http://www.tandfonline.com/REJF20

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    Cited by:
    1. Abdelbari El Khamlichi & Kamel Laaradh & Mohamed Arouri & Frédéric Teulon, 2014. "Performance Persistence of Islamic Equity Mutual Funds," Working Papers 2014-115, Department of Research, Ipag Business School.
    2. Walkshäusl, Christian & Lobe, Sebastian, 2012. "Islamic investing," Review of Financial Economics, Elsevier, vol. 21(2), pages 53-62.
    3. Ahdi Noomen Ajmi & Shawkat Hammoudeh & Duc Khuong Nguyen & Soodabeh Sarafrazi, 2013. "How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests," Working Papers 2013-035, Department of Research, Ipag Business School.
    4. Andreas Hoepner & Thereza Aguiar & Ravi Majithia, 2014. "The Level of Compliance with the International Code of Marketing of Breast-Milk Substitutes: Does it Matter to Stock Markets?," Journal of Business Ethics, Springer, vol. 119(3), pages 329-348, February.

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