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

Jonathan Peillex (1) , Elias Erragragui (2) , Mohammad Bitar (3) , Mohammed Benlemlih (4)

1 CRIISEA - Centre de Recherche sur les Institutions, l'Industrie et les Systèmes Économiques d'Amiens - UR UPJV 3908
2 Kedge Business School [Talence]
3 UON - University of Nottingham, UK
4 Métis Lab EM Normandie

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. \textcopyright 2018 Board of Trustees of the University of Illinois

Domaines: Économie et finance quantitative [q-fin]

Jonathan Peillex, Elias Erragragui, Mohammad Bitar, Mohammed Benlemlih. The contribution of market movements, asset allocation and active management to Islamic equity funds' performance. Quarterly Review of Economics and Finance, 2019, 74, pp.32. ⟨10.1016/j.qref.2018.03.013⟩. ⟨hal-03688864⟩