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Is Ethical Money Sensitive to Past Returns? The Case of Portfolio Constraints and Persistence in Islamic Funds

Omneya Abdelsalam (), Meryem Duygun (), Juan Carlos Matallín-Sáez () and Emili Tortosa-Ausina ()
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Omneya Abdelsalam: Durham University Business School
Meryem Duygun: University of Hull
Juan Carlos Matallín-Sáez: Universitat Jaume I
Emili Tortosa-Ausina: Universitat Jaume I and IVIE

Journal of Financial Services Research, 2017, vol. 51, issue 3, 363-384

Abstract: Abstract In this paper, we analyze the performance persistence and survivorship bias of Islamic funds. The remarkable growth of these types of ethical funds raises the question of how non-financial attributes, including beliefs and value systems, influence performance and its persistence. A procedure commonly used in prior literature to assess persistence is the measuring of the performance of investment strategies based on past performance. In this context, we propose a refined version of this methodology that controls the cross-sectional significance of the performance of these strategies. This procedure correctly identifies whether abnormal performance is due to a dynamic investment strategy based on past performance, or whether it is obtained by investing in a particular set of mutual funds. The significance of the persistence varies depending on the time horizon (yearly/half-yearly), survivorship, or the tail of the distribution. In particular, we find that persistence only exists for the best funds, whereas for the worst funds, the results are not significant.

Keywords: Islamic funds; SRI funds; Performance; Persistence (search for similar items in EconPapers)
JEL-codes: G2 N25 Z12 (search for similar items in EconPapers)
Date: 2017
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