IDEAS home Printed from https://ideas.repec.org/a/pal/assmgt/v14y2013i1d10.1057_jam.2012.23.html
   My bibliography  Save this article

A comparative performance analysis of conventional and Islamic exchange-traded funds

Author

Listed:
  • Nafis Alam

    (Nottingham University Business School, The University of Nottingham Malaysia Campus)

Abstract

Exchange-traded Funds (ETFs) have attracted many investors as one of the most innovative products of financial engineering. By virtue of the nascent nature of Islamic ETFs, comparative performance studies of Islamic and conventional ETFs are essential to assess the attractiveness of two distinct financial instruments. By making use of 85 ETFs from UK iShares between 2008 and 2011, this article compares the performance of conventional and Islamic ETFs. In our analysis, the Sharpe, Treynor and Sortino ratios are used as risk-adjusted performance measures. Islamic ETFs can beat both conventional ETFs and the market benchmark index based on risk-adjusted performance measures. Overall, both ETFs were able to outperform the market benchmark index. It is also evident that a portfolio of Islamic ETFs shows less variability and hence is less risky compared with their conventional counterpart. As the existing literature on ETFs generally lacks an empirical analysis of the comparative performance of conventional and Islamic ETFs, this article is a pioneering empirical research on the performance analysis of two distinct types of ETFs, taking samples from the largest provider of ETFs, iShares. The findings of this article are very relevant for investors and fund managers in determining policy matters, deciding investment and marketing strategy for two distinct types of capital market products.

Suggested Citation

  • Nafis Alam, 2013. "A comparative performance analysis of conventional and Islamic exchange-traded funds," Journal of Asset Management, Palgrave Macmillan, vol. 14(1), pages 27-36, February.
    • Handle: RePEc:pal:assmgt:v:14:y:2013:i:1:d:10.1057_jam.2012.23
    DOI: 10.1057/jam.2012.23
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/jam.2012.23
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1057/jam.2012.23?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
    2. Laurent Deville, 2008. "Exchange Traded Funds: History, Trading, and Research," Springer Optimization and Its Applications, in: Constantin Zopounidis & Michael Doumpos & Panos M. Pardalos (ed.), Handbook of Financial Engineering, pages 67-98, Springer.
    3. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    4. Harper, Joel T. & Madura, Jeff & Schnusenberg, Oliver, 2006. "Performance comparison between exchange-traded funds and closed-end country funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 104-122, April.
    5. James M. Poterba & John B. Shoven, 2002. "Exchange-Traded Funds: A New Investment Option for Taxable Investors," American Economic Review, American Economic Association, vol. 92(2), pages 422-427, May.
    6. repec:dau:papers:123456789/903 is not listed on IDEAS
    7. Cumby, Robert E & Glen, Jack D, 1990. "Evaluating the Performance of International Mutual Funds," Journal of Finance, American Finance Association, vol. 45(2), pages 497-521, June.
    8. Laurent Deville, 2008. "Exchange Traded Funds: History, Trading and Research," Post-Print halshs-00162223, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. L. Alamelu & Nisha Goyal, 2023. "Investment Performance and Tracking Efficiency of Indian Equity Exchange Traded Funds," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 165-188, March.
    2. Hassan, M. Kabir & Kayhana, Selim & Bayatb, Tayfur, 2016. "The Relation between Return and Volatility in ETFs Traded in Borsa Istanbul: Is there any Difference between Islamic and Conventional ETFs?," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 24, pages 45-76.
    3. Prabhdeep Kaur & Jaspal Singh & Sidharath Seth, 2021. "Investigating the Dynamics of Exchange Traded Funds Across the Bear and Bull Markets: Evidence from Indian Equity ETFs," Vision, , vol. 25(3), pages 350-360, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anjum, Sohail & Qayyum, Unbreen & Qureshi, Madeeha Gohar, 2019. "Aggregate performance evaluation of US Equity Mutual Funds - Explaining the performance of Growth Funds vs. Value Funds," MPRA Paper 100043, University Library of Munich, Germany.
    2. Elton, Edwin J. & Gruber, Martin J., 2013. "Mutual Funds," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1011-1061, Elsevier.
    3. Basu, Anup K. & Huang-Jones, Jason, 2015. "The performance of diversified emerging market equity funds," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 35(C), pages 116-131.
    4. Dobson, Peter, 2020. "ETFs tracking errors on global markets with consideration of regional diversity," MPRA Paper 103695, University Library of Munich, Germany.
    5. Joëlle Miffre, 2007. "Country-specific ETFs: An efficient approach to global asset allocation," Journal of Asset Management, Palgrave Macmillan, vol. 8(2), pages 112-122, July.
    6. Braun, Benjamin, 2016. "Gross, greed, and ETFs: The case for a microfounded political economy of the investment chain," economic sociology. perspectives and conversations, Max Planck Institute for the Study of Societies, vol. 17(3), pages 6-13.
    7. Kallinterakis, Vasileios & Liu, Fei & Pantelous, Athanasios A. & Shao, Jia, 2020. "Pricing inefficiencies and feedback trading: Evidence from country ETFs," International Review of Financial Analysis, Elsevier, vol. 70(C).
    8. Shin, Sangheon & Soydemir, Gökçe, 2010. "Exchange-traded funds, persistence in tracking errors and information dissemination," Journal of Multinational Financial Management, Elsevier, vol. 20(4-5), pages 214-234, December.
    9. Pendaraki, K. & Zopounidis, C. & Doumpos, M., 2005. "On the construction of mutual fund portfolios: A multicriteria methodology and an application to the Greek market of equity mutual funds," European Journal of Operational Research, Elsevier, vol. 163(2), pages 462-481, June.
    10. R. Shanmugham & Zabiulla, 2012. "Pricing Efficiency of Nifty BeES in Bullish and Bearish Markets," Global Business Review, International Management Institute, vol. 13(1), pages 109-121, February.
    11. Marszk, Adam & Lechman, Ewa, 2021. "Reshaping financial systems: The role of ICT in the diffusion of financial innovations – Recent evidence from European countries," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    12. William Goetzmann & Jonathan Ingersoll & Zoran Ivkovich, 1998. "Monthly Measurement of Daily Timers," Yale School of Management Working Papers ysm88, Yale School of Management, revised 01 Oct 2000.
    13. Shafiqur Rahman & Cheng-Few Lee & Yaqing Xiao, 2017. "The investment performance, attributes, and investment behavior of ethical equity mutual funds in the US: an empirical investigation," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 91-116, July.
    14. Charteris, Ailie & Chau, Frankie & Gavriilidis, Konstantinos & Kallinterakis, Vasileios, 2014. "Premiums, discounts and feedback trading: Evidence from emerging markets' ETFs," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 80-89.
    15. Seungho Baek & Kwan Yong Lee & Merih Uctum & Seok Hee Oh, 2020. "Robo-Advisors: Machine Learning in Trend-Following ETF Investments," Sustainability, MDPI, vol. 12(16), pages 1-15, August.
    16. Fadillah Mansor & M. Ishaq Bhatti & Shafiqur Rahman & Hung Quang Do, 2020. "The Investment Performance of Ethical Equity Funds in Malaysia," JRFM, MDPI, vol. 13(9), pages 1-14, September.
    17. Gallo, John G. & Lockwood, Larry J. & Bhargava, Rahul, 2010. "Performance of separately managed international equity accounts: How important are country momentum effects?," Global Finance Journal, Elsevier, vol. 21(3), pages 239-252.
    18. Carneiro, Livia Mendes & Eid Junior, William & Yoshinaga, Claudia Emiko, 2022. "The implications of passive investments for active fund management: International evidence," Global Finance Journal, Elsevier, vol. 53(C).
    19. Romacho, Joao Carlos & Cortez, Maria Ceu, 2006. "Timing and selectivity in Portuguese mutual fund performance," Research in International Business and Finance, Elsevier, vol. 20(3), pages 348-368, September.
    20. Cesari, Riccardo & Panetta, Fabio, 2002. "The performance of Italian equity funds," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 99-126, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:assmgt:v:14:y:2013:i:1:d:10.1057_jam.2012.23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.