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The contribution of market movements, asset allocation and active management to Islamic equity funds’ performance

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  • Peillex, Jonathan
  • Erragragui, Elias
  • Bitar, Mohammad
  • Benlemlih, Mohammed

Abstract

Where the performance of Islamic equity funds (IEFs) comes from? Is it from market movements, asset allocation policy or from active portfolio management? Our study is the first to tackle this question in the Islamic funds context. We use a database covering 281 IEFs for the period 2007-2016, and we test the role of each factor in explaining their returns. We find that market movements dominate the others components explaining nearly 50% of the monthly return variability and that, taking together, asset allocation policy and active management explain approximately the second half of IEFs returns. We argue that the IEFs underperformance observed by the existing literature could come from an inefficient and too important active portfolio management.

Suggested Citation

  • Peillex, Jonathan & Erragragui, Elias & Bitar, Mohammad & Benlemlih, Mohammed, 2019. "The contribution of market movements, asset allocation and active management to Islamic equity funds’ performance," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 32-38.
    • Handle: RePEc:eee:quaeco:v:74:y:2019:i:c:p:32-38
    DOI: 10.1016/j.qref.2018.03.013
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    Cited by:

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    6. Grira, Jocelyn & Labidi, Chiraz, 2021. "Banks, Funds, and risks in islamic finance: Literature & future research avenues," Finance Research Letters, Elsevier, vol. 41(C).
    7. Muhammad Anas & Ghulam Mujtaba & Sadaf Nayyar & Saira Ashfaq, 2020. "Time-Frequency Based Dynamics of Decoupling or Integration between Islamic and Conventional Equity Markets," JRFM, MDPI, vol. 13(7), pages 1-27, July.
    8. Barda, Kelly, 2020. "Analyser la performance financière des indices boursiers environnementaux [Analyzing financial performance of green stock market indices]," MPRA Paper 102537, University Library of Munich, Germany.
    9. Mendiela, Pauline, 2021. "Information security breaches and financial market reaction: the French case," MPRA Paper 105029, University Library of Munich, Germany.
    10. Mirza, Nawazish & Abbas Rizvi, Syed Kumail & Saba, Irum & Naqvi, Bushra & Yarovaya, Larisa, 2022. "The resilience of Islamic equity funds during COVID-19: Evidence from risk adjusted performance, investment styles and volatility timing," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 276-295.

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