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Do islamic or conventional mutual funds lead economic growth? evidence from Malaysia

Author

Listed:
  • Alchaar, Osama
  • Masih, Mansur

Abstract

Studying the relationship between mutual funds and economic growth is not a new trend in the empirical literature. However, most of these studies were conducted using classical regression and correlation and very few studies used the cointegration techniques to address the long-run relationship yet without specifying the lead-lag nexus or causal direction that is considered to be the most important research outcome for policymakers and economists. This paper tries to test a causal direction for lead-lag relationship between conventional or Islamic mutual funds on the one hand and economic growth on the other using standard time series techniques (like VECM, VDC, IR and PP). The paper tries to identify this nexus and answer two main questions as to which leads the other, mutual funds or economic growth? And is there a difference between conventional and Islamic funds in this lead-lag relationship? It is expected that this paper will fill a gap in the literature by addressing more accurately the relationship between the two types of mutual funds and economic growth in an emerging country that is globally renowned as an Islamic finance hub (i.e. Malaysia) where 18.8 billion USD are assets under Islamic funds management. Two causal (lead-lag) chains that start from the mutual funds and end with GDP were evidenced and that both Islamic and conventional mutual funds lead economic growth, however, conventional funds have bigger role in that.

Suggested Citation

  • Alchaar, Osama & Masih, Mansur, 2018. "Do islamic or conventional mutual funds lead economic growth? evidence from Malaysia," MPRA Paper 107224, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:107224
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    References listed on IDEAS

    as
    1. Delia-Elena DIACONASU, 2011. "The Role Of Mutual Funds In U.S. Economy," The Annals of the "Stefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration, vol. 11(2(14)), pages 239-244, December.
    2. Chu, Patrick Kuok-Kun, 2011. "Relationship between macroeconomic variables and net asset values (NAV) of equity funds: Cointegration evidence and vector error correction model of the Hong Kong Mandatory Provident Funds (MPFs)," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 792-810.
    3. Klapper, Leora & Sulla, Victor & Vittas, Dimitri, 2004. "The development of mutual funds around the world," Emerging Markets Review, Elsevier, vol. 5(1), pages 1-38, March.
    4. M. Kabir Hassan & Mervyn K. Lewis (ed.), 2007. "Handbook of Islamic Banking," Books, Edward Elgar Publishing, number 3621.
    5. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    6. Said M. Elfakhani & M. Kabir Hassan & Yusuf M. Sidani & Yusuf M. Sidani, 2007. "Islamic Mutual Funds," Chapters, in: M. Kabir Hassan & Mervyn K. Lewis (ed.), Handbook of Islamic Banking, chapter 16, Edward Elgar Publishing.
    7. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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