Constrained investments and opportunity cost – evidence from Islamic funds

2015 ◽  
Vol 41 (4) ◽  
pp. 348-367 ◽  
Author(s):  
Mustafa Dah ◽  
Monzurul Hoque ◽  
Song Wang
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Opportunity Cost ◽  
Islamic Law ◽  
World Population ◽  
Investment Strategies ◽  
Data Set ◽  
Content Type ◽  
The Impact ◽  
Integration Analysis

Purpose – The purpose of this paper is to examine the impact of Shariah guidelines on the performance of the Dow Jones Islamic Index (DJIM-US). Shariah or Islamic law is a set of rules that determines Islamic allowed activities including socially and ethically acceptable investments. Design/methodology/approach – The authors apply four risk-adjusted methodologies and co-integration analysis to investigate whether limited asset universe Shariah investments limit investment opportunities and impose an opportunity cost on investors given the prediction of conventional portfolio theories. Findings – In contrast to the prediction of conventional portfolio theories, the findings suggest no apparent opportunity cost for Shariah compatible investments. In particular, Dow Jones Islamic Mutual Funds do not under-perform the broader market US benchmarks nor do they have any co-integration with the broader indexes. Moreover, the authors find similar evidence in the studies of Islamic mutual funds in Saudi Arabia, Malaysia and Kuwait. Research limitations/implications – The findings will be reinforced when the authors will look into long run performance of Shariah compliant funds in future. Using non-linear approach will add further clarity to the findings. Practical implications – The results provide an insight suggesting that successful mutual fund managers are able to overcome Shariah restrictions and constraints through creative investment strategies. In the data set, the Amana Trust Growth fund and the Amana Trust Income fund were always the best performers with a highly significant abnormal return, no matter what the methodology was. Social implications – The performance of Islamic funds during the approximately seven-year period covered by the study is very promising. Popularity of Islamic Investment is expected to grow as Muslim population represents about 25 percent of the world population and the possibility for the Muslim funds to be considered as viable alternative by non-Shariah abiding or non-Muslim investors. The empirical results in the paper provide evidence that lack in diversification did not constrain the performance of Islamic funds. Originality/value – This paper applied comprehensive risk-adjusted methodologies and co-integration analysis to Islamic Funds for a seven-year period for multiple countries. The findings confirm previously obtained results and highlight the fact that constrained Islamic Funds may not under-perform as per conventional portfolio theories.

scholarly journals The impact of country-level and fund-level factors on mutual fund performance in Vietnam

2019 ◽  
Vol 21 (1) ◽  
pp. 42-56
Author(s):  
Hoa Thi Nguyen ◽  
Dung Thi Nguyet Nguyen
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Decision ◽  
Political Stability ◽  
Fund Performance ◽  
Data Set ◽  
Policy Makers ◽  
Content Type ◽  
Country Level ◽  
The Impact

Purpose The purpose of this paper is to examine the determinants of mutual funds’ performance at both a country level and a fund level in Vietnam. Design/methodology/approach The different types of funds with more than three-year operation are selected to remove outliers of the stock market boom from 2015 to 2018. The data set includes 54 mutual funds operating during the period from 2008 until November 2018. Findings The research finds that there is a positive relationship between macroeconomics and mutual funds’ performance. Furthermore, country-level governance such as regulation effectiveness, political stability, economic growth and financial development has a positive correlation with mutual funds’ performance. However, the impact of fund-level factors is diverse with the no significant impact of board size on mutual fund’s performance, while passive funds perform better than active funds in Vietnam. Practical implications The research results suggest that investors should pay attention to the types of funds and operating expense when making an investment decision in mutual funds. There are some recommendations for both government policy-makers and the mutual fund industry that are likely to facilitate the development of this field in Vietnam. Originality/value The research contributes to the understanding of what are the factors that should be considered when investing in mutual funds.

A study of prominence for disposition effect: a systematic review

2019 ◽  
Vol 11 (1) ◽  
pp. 2-21 ◽  
Author(s):  
Syed Aliya Zahera ◽  
Rohit Bansal
Keyword(s):  
Mutual Funds ◽  
Behavioral Finance ◽  
Mutual Fund ◽  
Institutional Investors ◽  
Disposition Effect ◽  
Individual Investors ◽  
Content Type ◽  
Experimental Market ◽  
The Individual ◽  
The Impact

Purpose The purpose of this paper is to study the disposition effect that is exhibited by the investors through the review of research articles in the area of behavioral finance. When the investors are hesitant to realize the losses and quick to realize the gains, this phenomenon is known as the disposition effect. This paper explains various theories, which have been evolved over the years that has explained the phenomenon of disposition effect. It includes the behavior of individual investors, institutional investors and mutual fund managers. Design/methodology/approach The authors have used the existing literatures from the various authors, who have studied the disposition effect in either real market or the experimental market. This paper includes literature over a period of 40 years, that is, Dyl, 1977, in the form of tax loss selling, to the most recent paper, Surya et al. (2017). Some authors have used the PGR-PLR ratio for calculating the disposition effect in their study. However, some authors have used t-test, ANNOVA, Correlation coefficient, Standard deviation, Regression, etc., as a tool to find the presence of disposition effect. Findings The effect of disposition can be changed for different types of individual investors, institutional investors and mutual funds. The individual investors are largely prone to the disposition effect and the demographic variables like age, gender, experience, investor sophistication also impact the occurrence of the disposition effect. On the other side, the institutional investors and mutual funds managers may or may not be affected by the disposition effect. Practical implications The skilled understanding of the disposition effect will help the investors, financial institutions and policy-makers to reduce the adverse effect of this bias in the stock market. This paper contributes a detailed explanation of disposition effect and its impacts on the investors. The study of disposition effect has been found to be insufficient in the context of Indian capital market. Social implications The investors and society at large can gains insights about causes and influences of disposition effect which will be helpful to create sound investment decisions. Originality/value This paper has complied the 11 causes for the occurrence of disposition effect that are found by the different authors. The paper also highlights the impact of the disposition effect in the decision-making of various investors.

Antecedents to heuristics: decoding the role of herding and prospect theory for Indian millennial investors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Preeti Goyal ◽  
Poornima Gupta ◽  
Vanita Yadav
Keyword(s):  
Prospect Theory ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Future Research ◽  
Content Type ◽  
Financial Investment ◽  
Financial Products ◽  
Financial Planners ◽  
The Impact

PurposeThe purpose of this paper is to explore how heuristics are formed and whether herding and prospect theory act as antecedents to heuristics. The relationship is explored specifically for millennials.Design/methodology/approachThe proposed relationship is explored specifically for millennials. Herding and prospect theory are modelled as antecedents to heuristics. The study uses survey data from 923 millennials from India to test the model for two financial products: equity and mutual funds. Regression analysis is used to evaluate the model.FindingsFindings support the role of herding and prospect theory as antecedents to heuristics of millennials although to varying degrees for equity and mutual fund investments. The impact of herding on heuristics is likely to be smaller for equity investments as compared to mutual fund investments.Research limitations/implicationsThe findings provide insights into how heuristics are formed for millennials. The findings add to literature by beginning a new line of inquiry on how heuristics are formed. Since the model is tested on a single generation, future research can test the model on other generations. In addition, future research can also add more antecedents to our proposed model.Practical implicationsFindings from this study can provide financial planners and marketers with an understanding of how heuristics are formed for millennials. Financial planners can use these insights while providing financial advice to this generation and marketers can use them to create more relevant outreach.Social implicationsFinancial investments are an important conduit for financial security. By understanding the cognitive processes that influence financial investment decision-making, it is possible for educators to create content appropriately and for financial planners to advise clients accordingly to enable optimal financial decisions that will be wealth-creating.Originality/valueExisting literature primarily treats heuristics, herding and prospect theory as being independent of each other. The authors take a novel approach to model the antecedents to heuristics to be herding and prospect theory. The model is tested on millennials for two financial products: equity and mutual funds.

scholarly journals Momentum investment strategies, corporate governance and firm performance: an analysis of Islamic banks

2017 ◽  
Vol 17 (2) ◽  
pp. 192-211 ◽  
Author(s):  
Tasawar Nawaz
Keyword(s):  
Corporate Governance ◽  
Human Capital ◽  
Positive Impact ◽  
Dominant Role ◽  
Market Value ◽  
Investment Strategies ◽  
Islamic Banks ◽  
Data Set ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to empirically examine the effect of investments in organisational resources and corporate governance features on market-based performance of Islamic banks (IBs). Design/methodology/approach The required data to calculate different constituents of banks’ investment strategies and governance mechanism were hand collected from 268 annual reports. Different regression models were used to determine the impact of investment in human and structural capital and corporate governance features on market performance of IBs. Findings The paper finds that investments in knowledge resources (human capital, in particular) have a significantly positive impact on the market value of IBs. The results further reveal that IBs’ strategy to rely on long-term human capital accumulation can be seen as idiosyncratic problem-solving knowledge capital. Based on market measure, the paper finds role duality to have a significant positive impact and the size of the advisory board to have the opposite effect on market value. Research limitations/implications This study includes IBs only and ignores other Islamic financial services providers such as Takaful (insurance) companies. The study leaves this chasm to be filled by future researchers. Practical implications The findings may serve as a useful input for both Islamic bankers and regulators to apply knowledge management in their institutions. Furthermore, the dominant role of human capital also provides insight to managers with respect to business performance levers. Originality/value The main contribution of this paper is to provide insight into the Islamic banking business model using a unique hand-collected data set, to identify the effect of investments in organisational resources and bank governance on market value in before, during and after financial crisis.

scholarly journals Investor confidence and mutual fund performance in emerging markets

2018 ◽  
Vol 45 (6) ◽  
pp. 1288-1310 ◽  
Author(s):  
Ann-Ngoc Nguyen ◽  
Muhammad Sadiq Shahid ◽  
David Kernohan
Keyword(s):  
Emerging Markets ◽  
Mutual Funds ◽  
Mutual Fund ◽  
Unobserved Heterogeneity ◽  
Generalized Method Of Moments ◽  
Fund Performance ◽  
Mutual Fund Performance ◽  
Content Type ◽  
Investor Confidence ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of investor confidence on mutual fund performance in two relatively vulnerable but leading emerging markets, India and Pakistan. Design/methodology/approach A pooled ordinary least squared (OLS) model is used to look at two alternative measures of investor confidence and test for the relationship between investor confidence and mutual fund returns. To check the robustness of the findings, the authors also implement two-stage least squares and generalized method of moments techniques to control for unobserved heterogeneity, simultaneity and dynamic endogeneity problems in the regressors. Findings The paper finds that the returns of mutual funds are positively associated with investor confidence and an interaction effect exists between investor confidence and persistence in performance. The paper also confirms that returns from mutual funds are associated with different fund characteristics such as fund size, turnover, expense, liquidity, performance persistence and the fund’s age. These findings remain robust to alternative model specifications and measures of investor confidence. Originality/value While the previous literature mainly focuses on mutual fund characteristics and the macroeconomic determinants of mutual fund returns, this paper demonstrates that investor confidence plays an important role in determining mutual fund performance. The authors attribute this finding to two relatively unique features of the emerging markets in the study. A lack of awareness of mutual funds as being a low-cost investment vehicle and the interplay of cultural and behavioral changes have prevented investor’s savings from being channeled into investment products, away from gold or property.

Impact of competition on fund disclosures and consumer search costs

2019 ◽  
Vol 18 (2) ◽  
pp. 198-220
Author(s):  
Sitikantha Parida
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Market Competition ◽  
Search Costs ◽  
Consumer Search ◽  
Relative Performance ◽  
Policy Implications ◽  
Content Type ◽  
The Impact ◽  
Illiquid Assets

Purpose The purpose of this paper is to investigate the impact of competition in financial markets on the frequency of portfolio disclosures by mutual funds and its implications for consumer search costs. Design/methodology/approach The empirical analysis merges the Center for Research in Security Prices (CRSP) survivorship bias-free mutual fund database, the Thompson Financial CDA/ Spectrum holdings database and the CRSP stock price data. The sample covers the time period between 1993 and 2010 and OLS and logistic regressions are used to investigate the impact of competition on fund disclosures. Findings This paper finds that mutual fund disclosures decrease with market competition and this effect is amplified for funds holding illiquid assets. These results provide empirical support for the findings of Carlin et al. (2102). Mutual funds use portfolio disclosures as a marketing tool to attract investments in a tournament-like market, where superior relative performance and greater visibility are rewarded with convex payoffs. With competition, the likelihood of receiving new investments decreases for each fund and funds respond by reducing costly voluntary disclosures. The disclosure costs are higher for funds holding illiquid assets, and hence, the effect is stronger for them. Originality/value This paper has important policy implications for disclosures in a market where relative performance matters. The traditional view is that competition induces voluntary disclosure because entities would like to differentiate themselves from competitors, and hence, competition should increase market transparency. However, this paper sheds light on the negative consequence of competition in a tournament-like mutual fund market.

Sustainability-themed mutual funds: an empirical examination of risk and performance

2018 ◽  
Vol 19 (3) ◽  
pp. 247-261 ◽  
Author(s):  
Federica Ielasi ◽  
Monica Rossolini ◽  
Sara Limberti
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Investment Strategies ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investment ◽  
Fund Managers ◽  
And Performance ◽  
Sustainable And Responsible Investment ◽  
Ethical Funds

PurposeThis paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement different sustainable and responsible investment strategies.Design/methodology/approachThe study refers to a European sample of 106 ethical funds and 51 sustainability-themed funds. The monthly performance of each fund is downloaded from Bloomberg for the period from January 1996 to December 2015. By applying a Fama and French (1993) three-factor model, the authors overcome the limits of a capital asset pricing model (CAPM) based-single index model, to compare the performance of the two categories of funds.FindingsSustainability-themed funds do not differ significantly from ethical funds in terms of portfolio attributes, except for market capitalization, age and net asset value. Regarding performance measures, the results shows that sustainability-themed funds have a lower underperformance than ethical funds (as measured by Jensen’s alpha), whereas the samples do not differ in terms of market risk (as measured by Beta coefficient). The idiosyncratic risk of sustainability-themed funds is positively influenced by the specific portfolio strategies. The sustainability-themed funds show a higher concentration in the industrial sector and a lower exposure to financial sector than ethical funds; in terms of geographical strategy, they are more global and international oriented; they mainly focus on small caps and value stocks.Research limitations/implicationsThe different sustainable and responsible investment strategies can be applied simultaneously and in a growing number of possible combinations. Mutual fund managers can consider thematic approach as an efficient opportunity for reconciling financial performance and economic sustainability. It is demonstrated that sustainability-themed funds adopt a portfolio strategy significantly different from ethical funds and from the environmental, social and governance benchmarks. Mutual fund managers implement a thematic specialization without any negative impact on the funds returns compared to ethical funds; actually, with a proper diversified portfolio, they are able to reduce idiosyncratic risk.Originality/valueThe analysis is extremely innovative, especially for the thematic sample. During the past 15 years, literature about sustainable and responsible investment has been focused especially on the differences in terms of risk and performance between socially responsible and conventional funds. This paper, starting from the methodology applied in these studies, wants to compare two different types of socially responsible strategies, with a specific focus on sustainability-themed mutual funds, given their exponential growth in the past few years.

Director of SEC’s Division of Investment Management discusses alternative mutual funds

2014 ◽  
Vol 15 (4) ◽  
pp. 15-18
Author(s):  
Richard F. Kerr
Keyword(s):  
Mutual Funds ◽  
Financial Institutions ◽  
Mutual Fund ◽  
Design Methodology ◽  
Investment Strategies ◽  
Investment Management ◽  
Content Type ◽  
Fund Industry ◽  
Mutual Fund Industry ◽  
Alternative Investment

Purpose – To alert participants in the mutual fund industry to regulatory developments in the alternative mutual fund space as articulated by the SEC’s Director of the Division of Investment Management. Design/methodology/approach – Reviews the Director’s discussion of the SEC’s concerns related to Valuation, Liquidity, Leverage and Disclosure resulting from the proliferation of alternative mutual funds. Additionally, summarizes the Director’s comments regarding Board oversight of alternative mutual funds. Findings – While the Director’s speech does not establish any new law or regulation, it is a practical summary of the SEC’s expectations for mutual fund complexes when implementing and operating mutual funds with alternative investment strategies that have historically been the province of private funds. Originality/value – Practical explanation from experienced financial institutions lawyers.

SEC fines alternative mutual fund adviser for improper handling of fund assets

2015 ◽  
Vol 16 (2) ◽  
pp. 35-37
Author(s):  
Michael McGrath ◽  
Pablo J. Man
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Financial Services ◽  
Securities And Exchange Commission ◽  
Investment Strategies ◽  
Investment Company ◽  
Content Type ◽  
Enforcement Action ◽  
Policies And Procedures ◽  
Repurchase Agreements

Purpose – To explain that the Securities and Exchange Commission (“SEC”) brought and settled charges against an investment adviser to several alternative mutual funds alleging, among other charges, failure to comply with the custody requirements of the Investment Company Act of 1940, as amended (the “1940 Act”). Design/methodology/approach – To explain that the Securities and Exchange Commission (“SEC”) brought and settled charges against an investment adviser to several alternative mutual funds alleging, among other charges, failure to comply with the custody requirements of the Investment Company Act of 1940, as amended (the “1940 Act”). Findings – The enforcement action serves as an important reminder for the growing number of advisers of alternative mutual funds to be mindful of specific restrictions and obligations when managing registered funds that do not apply to private funds and separate accounts. This action shows that the SEC will bring charges even when the alleged violations do not result in harm to investors. Practical implications – The 1940 Act, the rules thereunder, and SEC staff guidance relating to alternative investment strategies are complicated and not intuitive. These standards can constrain a registered fund’s ability to employ options, futures, swaps, prime brokerage, repurchase and reverse repurchase agreements, enhanced leverage through securities lending, and other facilities. As the SEC continues to examine alternative mutual funds, advisers to these funds should remain cognizant of the obligations arising under the 1940 Act and the implementation of fund policies and procedures. Originality/value – Practical guidance from experienced financial services lawyers.

Do mutual fund ratings provide valuable information for retail investors?

2018 ◽  
Vol 35 (1) ◽  
pp. 137-152 ◽  
Author(s):  
Andreas Oehler ◽  
Andreas Höfer ◽  
Matthias Horn ◽  
Stefan Wendt
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Design Methodology ◽  
Investment Strategies ◽  
Monthly Basis ◽  
Content Type ◽  
Rating Agencies ◽  
Dynamic Investment ◽  
Retail Investors ◽  
Rating Changes

Purpose Retail investors use information provided by mutual fund rating agencies to make investment decisions. This paper aims to examine whether the ratings provide useful information to retail investors by analyzing the rating migration and closure risk of mutual funds that received Morningstar’s mutual fund ratings from 2005 to 2012. Design/methodology/approach The research design differentiates between buy-and-hold investment strategies and dynamic investment strategies. To assess the information content of mutual fund ratings for buy-and-hold investment strategies, the rating migration based on the first and the last mutual fund rating during two-, four-, six- and eight-year horizons is determined. With respect to dynamic investment strategies, the number of rating changes per fund on a monthly basis during these time horizons is calculated. Findings Mutual fund rating persistence is low or even inexistent, in particular, during longer time periods. Only for lower-rated funds, the rating appears to indicate higher risk of fund closure. In addition, mutual funds face a large number of up to 38 monthly rating changes in the eight-year window. Originality/value Mutual fund rating persistence has hardly been analyzed for funds offered to retail investors so far. This paper clearly points out that because of the extensive rating migration and the high number of monthly rating changes, retail investors barely benefit from using mutual fund ratings.

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