COMPARISON OF THE PERFORMANCE OF ISLAMIC MUTUAL FUNDS vs. ETHICAL AND CONVENTIONAL MUTUAL FUNDS

Abstract

Mutual funds are one of the key contributors to the globalisation of financial markets and one of the main sources of capital flows to emerging economies. This study explores and measures the performance of global Islamic mutual funds through an econometric analysis. Specifically, this study conducted an empirical comparison of performances between Islamic, ethical, and conventional mutual funds using market indexes as benchmarks. In furthering the analyses, this study also explored the ‘Ramadan Effect’ and another comparison/or causality test between Islamic mutual funds and oil prices in the short/long run.
Statistical techniques were used in analysing monthly net asset value (NAV), management fee, and Dow Jones Islamic market index (DJIMI), S&P 500 Index, FTSE4Good Global Index, MSCI AC World Index and oil prices include (i) the augmented Dickey-Fuller (ADF) test and the Phillips-Perron (PP) test; (ii) Granger causality; (iii) cointegration, and (iv)the Generalized Method of Moments Regression.
Findings of the study demonstrate that oil price did not cause Islamic mutual fund’s performance during the period covered, while Islamic mutual fund’s performance causes oil prices. Since demand and supply equilibrium on oil is unpredictable and oil is considered both as an investment commodity and a fuel, the stock market leads oil prices. Results also show that there is no significant difference between the performance of Islamic mutual funds and those of ethical and conventional mutual funds and between the Islamic mutual funds and the well-known Islamic indices during the whole period or during the bullish or bearish periods.