Ethical Screening and Financial Performance: The Case of Islamic Equity Funds

Yunieta Nainggolan (), Janice How () and Peter Verhoeven ()
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Yunieta Nainggolan: Queensland University of Technology
Janice How: Queensland University of Technology
Peter Verhoeven: Queensland University of Technology

Journal of Business Ethics, 2016, vol. 137, issue 1, No 6, 83-99

Abstract: Abstract Whether ethical screening affects portfolio performance is an important question that is yet to be settled in the literature. This paper aims to shed further light on this question by examining the performance of a large global sample of Islamic equity funds (IEFs) from 1984 to 2010. We find that IEFs underperform conventional funds by an average of 40 basis points per month, consistent with the underperformance hypothesis. In line with popular media claims that Islamic funds are a safer investment, IEFs outperformed conventional funds during the recent banking crisis. However, we find no such outperformance for other crises or high volatility periods. Based on fund holdings-based data, we provide evidence of a negative curvilinear relation between fund performance and ethical screening intensity, consistent with a return trade-off to being more ethical.

Keywords: Ethical investments; Ethical screening; Fund performance; Islamic equity funds (search for similar items in EconPapers)
JEL-codes: A13 G11 G12 G23 G34 Z12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (27)

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DOI: 10.1007/s10551-014-2529-5

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