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Is Ethical Money Sensitive to Past Returns? The Case of Portfolio Constraints and Persistence in Islamic Funds

Author

Listed:
  • Omneya Abdelsalam

    (Durham University Business School)

  • Meryem Duygun

    (University of Hull)

  • Juan Carlos Matallín-Sáez

    (Universitat Jaume I)

  • Emili Tortosa-Ausina

    (Universitat Jaume I and IVIE)

Abstract

In this paper, we analyze the performance persistence and survivorship bias of Islamic funds. The remarkable growth of these types of ethical funds raises the question of how non-financial attributes, including beliefs and value systems, influence performance and its persistence. A procedure commonly used in prior literature to assess persistence is the measuring of the performance of investment strategies based on past performance. In this context, we propose a refined version of this methodology that controls the cross-sectional significance of the performance of these strategies. This procedure correctly identifies whether abnormal performance is due to a dynamic investment strategy based on past performance, or whether it is obtained by investing in a particular set of mutual funds. The significance of the persistence varies depending on the time horizon (yearly/half-yearly), survivorship, or the tail of the distribution. In particular, we find that persistence only exists for the best funds, whereas for the worst funds, the results are not significant.

Suggested Citation

  • Omneya Abdelsalam & Meryem Duygun & Juan Carlos Matallín-Sáez & Emili Tortosa-Ausina, 2017. "Is Ethical Money Sensitive to Past Returns? The Case of Portfolio Constraints and Persistence in Islamic Funds," Journal of Financial Services Research, Springer;Western Finance Association, vol. 51(3), pages 363-384, June.
    • Handle: RePEc:kap:jfsres:v:51:y:2017:i:3:d:10.1007_s10693-015-0234-x
    DOI: 10.1007/s10693-015-0234-x
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    3. Dan Daugaard, 2020. "Emerging new themes in environmental, social and governance investing: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1501-1530, June.
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    5. Khan, Abdullah & Rizvi, Syed Aun R. & Ali, Mohsin & Haroon, Omair, 2021. "A survey of Islamic finance research – Influences and influencers," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    6. Karbhari, Yusuf & Muye, Ibrahim & Hassan, Ahmad Fahmi S. & Elnahass, Marwa, 2018. "Governance mechanisms and efficiency: Evidence from an alternative insurance (Takaful) market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 71-92.
    7. Deimante Teresiene & Daiva Budriene, 2021. "Business ethics and ethical investing: from historical, ethical approach to real investments," Technium Social Sciences Journal, Technium Science, vol. 17(1), pages 212-221, March.
    8. Abdelsalam, Omneya & Chantziaras, Antonios & Ibrahim, Masud & Omoteso, Kamil, 2021. "The impact of religiosity on earnings quality: International evidence from the banking sector," The British Accounting Review, Elsevier, vol. 53(6).

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    More about this item

    Keywords

    Islamic funds; SRI funds; Performance; Persistence;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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