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Non-parametric performance measurement of international and Islamic mutual funds

Author

Listed:
  • Jose Francisco Rubio
  • M. Kabir Hassan
  • Hesham Jamil Merdad

Abstract

Purpose - The purpose of this paper is to study whether Islamic investors lose portfolio efficiency due to a limited asset universe. Design/methodology/approach - The paper contributes to prior literature by using non-parametrical measurements of efficiency instead of regular (parametrical) methods. Data envelopment analysis (DEA) was used in order to better characterize the risk and return relationship, as well as estimating a single performance index to rank different funds and compare them to one another. Findings - Overall, the results are congruent with prior findings. That is, there is strong evidence suggesting that Islamic funds are highly efficient and that they outperform their international counterparts. Also, results are robust to different estimation of DEA, the specification of the asset universe, and the inclusion of financial crisis period in analysis. Research limitations/implications - Though the paper's findings are robust to different specifications of the DEA model and time periods, the authors caution readers due to the limited sample. Practical implications - Having defined a performance index, one can therefore isolate the funds which are the most efficient and thus drive trading activities towards said funds. Social implications - Since the paper's findings suggest that Islamic investors do not lose efficiency, investing into a limited asset universe which follows social and ethical constraints (given by Shariah law) is recommended. Originality/value - The paper is able to confirm prior literature, even by using a non-parametrical measurement of efficiency. In this way, the authors have accounted for an extra penalty on the risk-return relationship: skewness.

Suggested Citation

  • Jose Francisco Rubio & M. Kabir Hassan & Hesham Jamil Merdad, 2012. "Non-parametric performance measurement of international and Islamic mutual funds," Accounting Research Journal, Emerald Group Publishing, vol. 25(3), pages 208-226, November.
  • Handle: RePEc:eme:arjpps:v:25:y:2012:i:3:p:208-226
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    Citations

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    Cited by:

    1. Ashraf, Dawood & Mohammad, Nazeeruddin, 2014. "Matching perception with the reality—Performance of Islamic equity investments," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 175-189.
    2. Alexakis, Christos & Pappas, Vasileios & Tsikouras, Alexandros, 2017. "Hidden cointegration reveals hidden values in Islamic investments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 70-83.
    3. Ho, Catherine Soke Fun & Abd Rahman, Nurul Afiqah & Yusuf, Noor Hafizha Muhamad & Zamzamin, Zaminor, 2014. "Performance of global Islamic versus conventional share indices: International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 110-121.
    4. Merdad, Hesham Jamil & Kabir Hassan, M. & Hippler, William J., 2015. "The Islamic risk factor in expected stock returns: an empirical study in Saudi Arabia," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 293-314.
    5. repec:eee:intfin:v:49:y:2017:i:c:p:15-31 is not listed on IDEAS
    6. repec:eee:intfin:v:57:y:2018:i:c:p:1-16 is not listed on IDEAS
    7. repec:eee:ecosys:v:42:y:2018:i:3:p:450-469 is not listed on IDEAS
    8. Makni, Rania & Benouda, Olfa & Delhoumi, Ezzedine, 2015. "Large scale analysis of Islamic equity funds using a meta-frontier approach with data envelopment analysis," Research in International Business and Finance, Elsevier, vol. 34(C), pages 324-337.
    9. repec:eee:corfin:v:55:y:2019:i:c:p:1-5 is not listed on IDEAS

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