A comparative risk-adjusted returns performance evaluation of Islamic, ethical and conventional mutual funds in Nigeria (2014-2018)

Abdullahi Salihu Abubakar and Aliyu Dahiru Muhammad

Chapter 8 in Islamic Finance in Africa, 2022, pp 143-166 from Edward Elgar Publishing

Abstract: In this study, a comparative, risk-adjusted returns performance evaluation of Islamic, ethical and conventional mutual funds in Nigeria was conducted within the period of January 1, 2014 to December 31, 2018. The study applied six different risk-adjusted performance evaluation measures with a market timing and stock selectivity model to analyze the performance of 6 samples of mutual funds cutting across Islamic, ethical and conventional funds schemes operating in Nigeria. Descriptive and inferential statistical measures were used to analyze the market data spanning over the 5-year period of the study. The results from the analysis show that only one conventional fund compensate its investors for taking total risk, downside risk and market risk, based on results from Treynor, Sharpe and Sortino ratios, while the managers of five out of the six funds show evidence of stock selection ability which indicates their superior performance over the two market proxies - the NSE ASI and NSE LCII. The study also found that, as a group, the conventional and ethical funds show strong evidence of high volatility over the period of the study, while the Islamic fund group was less risky as it provides stable returns. This suggest prospects for using Islamic funds for hedging due to its low risk. No evidence of market timing abilities was detected over the 5-year period the study covered. However, the study relies on single factor Capital Asset Pricing Model to conduct the analysis.

Keywords: Development Studies; Economics and Finance (search for similar items in EconPapers)
Date: 2022
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