Islamic equity funds and stock market: dynamic relation and market timing during the COVID-19 outbreak
Journal of Economic and Administrative Sciences
ISSN: 2054-6238
Article publication date: 5 July 2022
Issue publication date: 27 November 2024
Abstract
Purpose
This paper aims to explore the impact of the COVID-19 pandemic on the market timing skills of Islamic equity funds in Asia, Europe and North America.
Design/methodology/approach
The authors employed a two-step process. First, a Granger causality test is applied to test the bivariate relationship between Islamic fund indices and stock market ones by highlighting the impact of the COVID-19 pandemic. Second, the methodology of Treynor and Mazuy (1966) is deployed to account for the market timing abilities skills of Islamic fund managers during the pandemic period.
Findings
The investigation revealed mixed results. The European Islamic funds were positively impacted by the stock market as well as by the COVID-19 pandemic context. Additionally, compared to their Asian and North American peers, only European Islamic fund managers have the ability to time the market during the health crisis period.
Research limitations/implications
Despite its contribution to the Islamic finance literature, this study has some flaws. Indeed, the selected sample of three regions, namely Asia, Europe and North America, precludes extrapolating these conclusions. Other regions should be investigated to further our understanding of Islamic equity funds. Furthermore, due to data availability and accessibility, the study period was limited to a specific time of the COVID-19 pandemic. This shortcoming can be addressed through a multiwave investigation, especially since each region was exposed differently to the pandemic.
Practical implications
The paper provides scholars, portfolio managers and investors with insights regarding the investment dilemma during the COVID-19 pandemic period, especially for those wishing to hedge their pandemic risk exposure and/or diversify their portfolios. Equally, the depiction of potential market timing abilities of Islamic fund managers across the three regions would serve as a guide to identifying the most suitable internationally focused investment strategy.
Social implications
The paper provides scholars, portfolio managers and investors with insights regarding the investment dilemma during the COVID-19 pandemic period, especially for those wishing to hedge their pandemic risk exposure and/or diversify their portfolios. Equally, the depiction of potential market timing abilities of Islamic funds managers across the three regions would serve as a guide to identify the most suitable internationally focused investment strategy.
Originality/value
The originality of this investigation is that it is the first to examine Islamic equity fund managers and their skills to time the stock markets during the COVID-19 pandemic period in Asia, Europe and North America. The current paper extends the Islamic finance literature.
Keywords
Citation
Ben Khelifa, S. and Arsi, S. (2024), "Islamic equity funds and stock market: dynamic relation and market timing during the COVID-19 outbreak", Journal of Economic and Administrative Sciences, Vol. 40 No. 4, pp. 837-850. https://doi.org/10.1108/JEAS-08-2021-0173
Publisher
:Emerald Publishing Limited
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