Performance measurement of Islamic mutual funds using DEA method

Abul Hassan, Abdelkader Chachi and Mahfuzur Rahman Munshi

Journal of Islamic Accounting and Business Research, 2020, vol. 11, issue 8, 1481-1496

Abstract: Purpose - The purpose of this study is to update the investment literature by providing latest evidence of performance of Islamic mutual funds by using global sample mutual funds data to support with empirical facts. Design/methodology/approach - This study analyzes the comparative performance of Islamic and conventional mutual funds by using capital asset pricing model, Fama & French’s three-factor model and Carhart’s four-factor model. Further, the study tested the coskenwness effect by using data envelopment analysis approach. Findings - The authors find evidence that when size of the funds is controlled, Islamic investment underperform the conventional mutual funds in four out of six models. The size of underperformance varies from model to model: from 32 basis points in the Carhart’s four-factor model with the skewness factor to two basis points at the Fama and French’s three-factor model. Also the study finds that alpha(s) are only insignificant for conventional mutual funds when the skewness factor is included in the regression. While comparing the loading on Islamic mutual funds, results show that Islamic mutual funds are less risky than conventional mutual funds when they are controlled for skewness. Originality/value - This study uses the different factor models of performance evolution which help in overcoming weakness of measuring the Islamic mutual funds’ performance.

Keywords: Islamic mutual fund; Asset pricing model; Coskewness; Ethical investment (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-04-2018-0053

DOI: 10.1108/JIABR-04-2018-0053

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