Comparative analysis of Shari’ah-compliant portfolios

evidence from Pakistan

Research output: Contribution to journalArticle

Abstract

Purpose: This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods. Design/methodology/approach: The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973). Findings: The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market. Practical implications: It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments. Originality/value: The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.

Original languageEnglish
Pages (from-to)466-487
Number of pages22
JournalJournal of Islamic Accounting and Business Research
Volume10
Issue number3
DOIs
Publication statusPublished - 7 May 2019

Fingerprint

Comparative analysis
Pakistan
Equity
Income
Market timing
Sharpe ratio
Evaluation method
Selectivity
Performance assessment
Decomposition
Mutual funds
Strategic positioning
Merton model
Performance evaluation
Competitiveness
Design methodology
Industry
Assets
Market selection
Dividends

Keywords

  • Ethical investments
  • Halal investments
  • Islamic funds
  • Pakistan mutual funds
  • Portfolio evaluation
  • Portfolio management

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Strategy and Management

Cite this

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title = "Comparative analysis of Shari’ah-compliant portfolios: evidence from Pakistan",
abstract = "Purpose: This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods. Design/methodology/approach: The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973). Findings: The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market. Practical implications: It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments. Originality/value: The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.",
keywords = "Ethical investments, Halal investments, Islamic funds, Pakistan mutual funds, Portfolio evaluation, Portfolio management",
author = "Shaikh, {Salman Ahmed} and Ismail, {Mohd Adib} and Ismail, {Abd. Ghafar} and Shahida Shahimi and {Mohd. Shafiai}, {Muhammad Hakimi}",
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AU - Mohd. Shafiai, Muhammad Hakimi

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AB - Purpose: This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods. Design/methodology/approach: The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973). Findings: The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market. Practical implications: It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments. Originality/value: The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.

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KW - Portfolio evaluation

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