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Intertemporal Test of Beta Stationarity Performance of Islamic Sector Structured Mutual Funds

Listed author(s):
  • Mahmoud Haddad

    ()

    (University of Tennessee –Marti, College of Business Administration and Public Affairs)

  • Ghassem Homaifar
  • Said Elfakhani
  • Hikmat Ahmedov
Registered author(s):

    The purpose of this research paper is to examine social Islamic mutual funds’ financial performance. Since Islamic mutual funds have only been around for the past two decades, most of the research on this topic is fairly new. In this study we apply the single factor model of Schwert and Seguin (1990) to a sample of Islamic mutual funds. The Islamic mutual funds market is one of the fastest growing sectors within the Islamic financial system. Several studies have investigated the characteristics of individual Islamic mutual funds (see Elfakhani, et al (2006), Elfakhani ,et al (2005), and Hassan, et al (2005). We are not aware of any studies that have applied the Schwert and Seguin methodology to Islamic mutual funds. Such an application is important because it allows for studying the impact of market volatility on the time variation of monthly betas and the corresponding returns. Using the S&P 500 and the FTSE Global Islamic indices on sector structured Islamic mutual funds, our results suggest that the volatility of the market and that of the Islamic mutual funds portfolio behave differently with inter and intra market proxies. There is also evidence that the volatility persistence of each Islamic mutual fund portfolio and its systematic risk are significantly related. Hence, the systematic risks of different portfolios tend to move in a different direction during periods of increased market volatility. As a result, we gain an insight into the return dynamics and the process by which Islamic mutual funds prices are determined.

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    Paper provided by Economic Research Forum in its series Working Papers with number 427.

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    Length: 13
    Date of creation: 09 Jan 2008
    Date of revision: 09 Jan 2008
    Publication status: Published by The Economic Research Forum (ERF)
    Handle: RePEc:erg:wpaper:427
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    1. Grieb, Terrance & Reyes, Mario G, 1999. "Random Walk Tests for Latin American Equity Indexes and Individual Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 371-383, Winter.
    2. Baesel, Jerome B, 1974. "On the Assessment of Risk: Some Further Considerations," Journal of Finance, American Finance Association, vol. 29(5), pages 1491-1494, December.
    3. Chen, Son-Nan & Keown, Arthur J, 1981. "Risk Decomposition and Portfolio Diversification When Beta Is Nonstationary: A Note," Journal of Finance, American Finance Association, vol. 36(4), pages 941-947, September.
    4. Ronald Hill & Thomas Ainscough & Todd Shank & Daryl Manullang, 2007. "Corporate Social Responsibility and Socially Responsible Investing: A Global Perspective," Journal of Business Ethics, Springer, vol. 70(2), pages 165-174, January.
    5. Blume, Marshall E, 1975. "Betas and Their Regression Tendencies," Journal of Finance, American Finance Association, vol. 30(3), pages 785-795, June.
    6. Bill McDonald, 1985. "Estimating Market Model Betas: A Comparison of Random Coefficient Methods and Their Ability to Correctly Identify Random Variation," Management Science, INFORMS, vol. 31(11), pages 1403-1408, November.
    7. Terrance Grieb & Mario G. Reyes, 1999. "Random Walk Tests For Latin American Equity Indexes And Individual Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(4), pages 371-383, December.
    8. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
    9. Son-Nan Chen & Cheng F. Lee, 1986. "The Effects of the Sample Size, the Investment Horizon and Market Conditions on the Validity of Composite Performance Measures: A Generalization," Management Science, INFORMS, vol. 32(11), pages 1410-1421, November.
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