Constrained investments and opportunity cost – evidence from Islamic funds

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dc.contributor.author Dah, Mustafa
dc.contributor.author Hoque, Monzurul
dc.contributor.author Wang, Song
dc.date.accessioned 2016-05-26T07:03:59Z
dc.date.available 2016-05-26T07:03:59Z
dc.date.copyright 2015 en_US
dc.date.issued 2016-05-26
dc.identifier.issn 0307-4358 en_US
dc.identifier.uri http://hdl.handle.net/10725/3881 en_US
dc.description.abstract Purpose – The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of rules that determines Islamic allowed activities including socially and ethically acceptable investments. Design/methodology/approach – The authors apply four risk-adjusted methodologies and co-integration analysis to investigate whether limited asset universe Shariah investments limit investment opportunities and impose an opportunity cost on investors given the prediction of conventional portfolio theories. Findings – In contrast to the prediction of conventional portfolio theories, the findings suggest no apparent opportunity cost for Shariah compatible investments. In particular, Dow Jones Islamic Mutual Funds do not under-perform the broader market US benchmarks nor do they have any co-integration with the broader indexes. Moreover, the authors find similar evidence in the studies of Islamic mutual funds in Saudi Arabia, Malaysia and Kuwait. Research limitations/implications – The findings will be reinforced when the authors will look into long run performance of Shariah compliant funds in future. Using non-linear approach will add further clarity to the findings. Practical implications – The results provide an insight suggesting that successful mutual fund managers are able to overcome Shariah restrictions and constraints through creative investment strategies. In the data set, the Amana Trust Growth fund and the Amana Trust Income fund were always the best performers with a highly significant abnormal return, no matter what the methodology was. Social implications – The performance of Islamic funds during the approximately seven-year period covered by the study is very promising. Popularity of Islamic Investment is expected to grow as Muslim population represents about 25 percent of the world population and the possibility for the Muslim funds to be considered as viable alternative by non-Shariah abiding or non-Muslim investors. The empirical results in the paper provide evidence that lack in diversification did not constrain the performance of Islamic funds. Originality/value – This paper applied comprehensive risk-adjusted methodologies and co-integration analysis to Islamic Funds for a seven-year period for multiple countries. The findings confirm previously obtained results and highlight the fact that constrained Islamic Funds may not under-perform as per conventional portfolio theories. en_US
dc.language.iso en en_US
dc.title Constrained investments and opportunity cost – evidence from Islamic funds en_US
dc.type Article en_US
dc.description.version Published en_US
dc.author.school SOB en_US
dc.author.idnumber 200104725 en_US
dc.author.department Department of Finance and Accounting (FINA) en_US
dc.description.embargo N/A en_US
dc.relation.journal Managerial Finance en_US
dc.journal.volume 41 en_US
dc.journal.issue 4 en_US
dc.article.pages 348 - 367 en_US
dc.keywords Performance measurement en_US
dc.keywords Islam en_US
dc.keywords Portfolio investment en_US
dc.keywords Capital Asset Pricing Model en_US
dc.keywords Investment funds en_US
dc.keywords Autoregressive processes en_US
dc.identifier.doi http://dx.doi.org/10.1108/MF-06-2014-0179 en_US
dc.identifier.ctation Dah, M., Hoque, M., & Wang, S. (2015). Constrained investments and opportunity cost–evidence from Islamic funds. Managerial Finance, 41(4), 348-367. en_US
dc.author.email mustafa.dah@lau.edu.lb en_US
dc.identifier.tou http://libraries.lau.edu.lb/research/laur/terms-of-use/articles.php en_US
dc.identifier.url http://www.emeraldinsight.com/doi/full/10.1108/MF-06-2014-0179 en_US

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