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This study aims to test mutual fund superiority, comparing the performance of 646 Islamic mutual funds with 475 ethical funds and conventional proxies.
Abstract
Purpose
This study aims to test mutual fund superiority, comparing the performance of 646 Islamic mutual funds with 475 ethical funds and conventional proxies.
Design/methodology/approach
This study uses statistical methods including paired t-statistics of independent samples, one-way Bonferroni test–analysis of variance–F-statistic for testing means equality, the chi-squared test for median equality and regression models corrected for heteroscedasticity. These methods are used to identify superiority of mutual funds and to validate the significance of the results.
Findings
The findings confirm the superiority of conventional funds over ethical funds and ethical funds over Islamic funds. Both ethical and Islamic funds, however, outperform conventional proxies during some recessionary periods. Moreover, stronger performance is recorded for Islamic funds in Europe and North America regions and across age and asset allocation categories, but limited support for reversal fund size, composition focus and reversed price effect.
Research limitations/implications
These findings should assist investors when deciding to invest and motivate Islamic and ethical funds to improve their portfolio formation and asset allocation strategies set by their professional managers.
Originality/value
The originality of this study is in its comprehensive approach in that it compares the performance of funds after accounting for such characteristics as fund objectives, size, age, asset allocation, geographical investment focus, fund composition focus, share price levels and the effect of global crises. This study approach is not only original and productive in documenting Islamic funds’ performance for the past three decades (1990–2022) but can also update the literature on these characteristics collectively and individually.
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– The purpose of this paper is to analyze investor reactions to ethical screening by pension plan managers.
Abstract
Purpose
The purpose of this paper is to analyze investor reactions to ethical screening by pension plan managers.
Design/methodology/approach
The author presents a sample consisting of data corresponding to 573 pension plans in relation to such aspects as financial performance, inception date, asset size, number of participants, custodial and management fees, and whether their managers adopt ethical screening or give part of their profits to social projects. On this data the author implements the fixed effects panel data model proposed by Vogelsang (2012).
Findings
The results obtained indicate that investors/consumers prefer traditional or solidarity pension plans to ethical pension plans. Furthermore, the findings show that ethical investors/consumers are more (less) sensitive to positive (negative) lagged returns than caring and traditional consumers, causing traditional consumers to contribute to pension plans that they already own.
Research limitations/implications
The author does not know what types of environmental, social and corporate governance criteria have been adopted by ethical pension plan managers and the weight given to each of these criteria for selecting the stock of the firms in their portfolios that could influence in the investors’ behaviour.
Practical implications
The results obtained in the current paper show that investors invest less money in ethical pension plans than in traditional and solidarity pension plans; this could be due to the lack of information for their part. To solve this, management companies could increase the transparency about their corporate social responsibility (CSR) investments to encourage investors to invest in ethical products so these lead to raising CSR standards in companies, and therefore, sustainable development.
Social implications
The Spanish socially responsible investment retail market is still at an early phase of development, and regulators should promote it in order to encourage firms to adopt business activities that take into account societal concerns.
Originality/value
This paper provides new evidence in a field little analysed. This paper contributes to the existing literature by focusing on examining the behaviour of pension funds investors whose investment time horizon is in the long-term while previous literature focus on analysing behaviour of mutual fund investors whose investment time horizon is in the short/medium term what could cause different investors’ behaviour.
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Federica Ielasi, Monica Rossolini and Sara Limberti
This paper aims to analyze the portfolio characteristics and the performance measures of sustainability-themed mutual funds, compared to ethical mutual funds that implement…
Abstract
Purpose
This 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/approach
The 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.
Findings
Sustainability-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/implications
The 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/value
The 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.
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The purpose of this paper is to assess the compatibility between the religious investing criteria of some Christian mutual funds and the “ Interfaith Center for Corporate…
Abstract
Purpose
The purpose of this paper is to assess the compatibility between the religious investing criteria of some Christian mutual funds and the “ Interfaith Center for Corporate Responsibility” (ICCR) shareholder resolutions about corporate unethical/illegal practices.
Design/methodology/approach
Among all ICCR 2007‐2008 shareholder resolutions, the paper analyze unethical practices that could lead to corporate illegalities for business corporations that are included in the portfolios of Christian mutual funds. It will determines to what extent such companies have codes of ethics that clearly explained the expected behaviour from their employees, managers, or directors about given ethical issues: sexual orientation discrimination, conflicts of interest on the board and slave labour in the supply chain.
Findings
About the issue of slave labour in the supply chain, managers of Christian mutual funds could not invoke ignorance since in the code of ethics of one company, there is no provision dealing with slave labour. Concerning conflicts of interest on the board, managers of Christian mutual funds could not identify potential risks related to those companies, since the problem is the applicability of their codes of ethics. Finally, companies have very different ways to address or not the issue of sexual orientation discrimination in their codes of ethics.
Originality/value
The originality of the paper is twofold: first to compare companies Christian mutual funds are investing in (on the basis of Christian selection criteria) and companies for which there are ICCR resolutions (the aim of such resolutions is to change some questionable or unethical aspect of a given business corporation), and second to see to what extent corporate codes of ethics are written in a way to reduce or increase the potentiality of ethical conflicts.
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Mustafa Dah, Monzurul Hoque and Song Wang
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…
Abstract
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.
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Pension funds are demanding increasingly more information about the levels of corporate social responsibility achieved by companies through the use of corporate social…
Abstract
Purpose
Pension funds are demanding increasingly more information about the levels of corporate social responsibility achieved by companies through the use of corporate social responsibility reports to select which firms’ stocks to invest in. This could improve or reduce the financial performance achieved by pension plans. Therefore, this chapter examines the financial performance obtained by equity pension plans, distinguishing between solidarity pension plans, ethical pension plans and conventional pension plans.
Design/methodology/approach
We use a sample of 153 individual system pension plans (129 conventional pension plans, 6 solidarity pension plans and 18 ethical pension plans). Using these sample data, we implement the robust random effects panel data methodology.
Findings
The results show that ethical pension plans perform similarly to traditional pension plans, while solidarity pension plans significantly outperform conventional pension plans.
Research limitations/implications
We do not know what weights managers give to environmental, social and corporate governance criteria, which may influence the financial performance of pension plans.
Practical implications
The results of this study could be relevant for pension plan managers that may be considering the integration of ethical screening in their management strategies in order to offer differentiated products and for investors who would like to invest in ethical pension plans without compromising their financial performance.
Originality/value of the chapter
Previous studies have analysed the financial performance obtained by traditional and ethical funds, but in this chapter we compare the financial performance of traditional, solidarity and ethical pension plans.
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Abul Hassan, Abdelkader Chachi and Mahfuzur Rahman Munshi
The purpose of this study is to update the investment literature by providing latest evidence of performance of Islamic mutual funds by using global sample mutual funds data to…
Abstract
Purpose
The purpose of this study is to update the investment literature by providing latest evidence of performance of Islamic mutual funds by using global sample mutual funds data to support with empirical facts.
Design/methodology/approach
This study analyzes the comparative performance of Islamic and conventional mutual funds by using capital asset pricing model, Fama & French’s three-factor model and Carhart’s four-factor model. Further, the study tested the coskenwness effect by using data envelopment analysis approach.
Findings
The authors find evidence that when size of the funds is controlled, Islamic investment underperform the conventional mutual funds in four out of six models. The size of underperformance varies from model to model: from 32 basis points in the Carhart’s four-factor model with the skewness factor to two basis points at the Fama and French’s three-factor model. Also the study finds that alpha(s) are only insignificant for conventional mutual funds when the skewness factor is included in the regression. While comparing the loading on Islamic mutual funds, results show that Islamic mutual funds are less risky than conventional mutual funds when they are controlled for skewness.
Originality/value
This study uses the different factor models of performance evolution which help in overcoming weakness of measuring the Islamic mutual funds’ performance.
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Esther Castro, M. Kabir Hassan, Jose Francisco Rubio and Zairihan Abdul Halim
This paper updates the literature regarding the performance of constrained US mutual funds by looking at the relative performance of Christian mutual funds, socially responsible…
Abstract
Purpose
This paper updates the literature regarding the performance of constrained US mutual funds by looking at the relative performance of Christian mutual funds, socially responsible funds and Islamic funds. This paper aims to rank the performance of religious and ethical investment funds.
Design/methodology/approach
This study uses monthly returns from 2005 to 2015 to perform traditional asset pricing models as well as data envelopment analysis to determine rank.
Findings
Islamic mutual funds outperform socially responsible funds, which then outperform Christian-based mutual funds; these results are also consistent during the latest 2007-2008 crisis period. The results are robust to different performance metrics and benchmarks. Moreover, this paper reports a significant amount of money “left on the table” by investing in constraint funds and disregarding the sin industry which shows an ethical dilemma for investors.
Practical implications
Investors who seek to invest morally/ethically can be informed of the cost of doing so. They can also compare portfolio with others that have similar holdings and constraints.
Originality/value
This paper not only includes Christian mutual funds in the research but also provides the performance of all constrained assets. It also compares religious funds with “SIN” industry, and thus quantifies the cost of “doing right.”
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Joan Junkus and Thomas D. Berry
The purpose of this paper is to provide a review of the most recent work in major finance journals on socially responsible investment (SRI). While SRI involves individual…
Abstract
Purpose
The purpose of this paper is to provide a review of the most recent work in major finance journals on socially responsible investment (SRI). While SRI involves individual investors, firms, and investment managers, the authors concentrate primarily on the investment view.
Design/methodology/approach
The authors briefly review the development of socially responsible investing (SRI) and the theoretical issues related to SRI and investment choice. This is followed by a review of the empirical results concerning firm value. The question of whether SR mutual funds and SR indexes differ in performance or other characteristics from their conventional counterparts is discussed next, and lastly the authors present suggestions for future research directions.
Findings
Despite the large and extensive amount of empirical research published on SRI in recent years, the authors find no definitive answer to the question of SR actions for either the firm or the investor. For firms, evidence linking corporate social responsibility (CSR) rankings with higher value is mixed, and depends on the type of CSR behavior studied as well as the measures of firm performance used. The performance of SR mutual funds and indexes generally are not significantly different from conventional funds or indexes, but again these results are also highly dependent on model specification, time period, benchmark, and other characteristics of the study.
Practical implications
The value of SR investing has not been definitely proved. This means, however, that there is room for further on this important topic.
Originality/value
This paper synthesizes and presents the most recent research on SRI from a wide variety of refereed sources.
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The purpose of this paper is to address reasons for consumer investment in socially responsible investment (SRI) profiled mutual funds. Specifically, the paper deals with the…
Abstract
Purpose
The purpose of this paper is to address reasons for consumer investment in socially responsible investment (SRI) profiled mutual funds. Specifically, the paper deals with the relative influence of financial return and social responsibility on the decision to invest in SRI profiled mutual funds.
Design/methodology/approach
A cluster analytic approach was used where 563 SR‐investors were classified into different segments based on their perception of importance of financial return and social responsibility. Furthermore, discriminant analysis and chi2 tests were used to profile the segments.
Findings
Three segments of SR‐investors were formed. The “primarily concerned about profit” SR‐investors value financial return over social responsibility. The “primarily concerned about social responsibility” value social responsibility over financial return. The “socially responsible and return driven” SR‐investors value both return and social responsibility when deciding to invest in SRI. The segments displayed distinct differences with regard to various profiling variables.
Research limitations/implications
As respondents were generated from one SRI provider, it is possible that the respondents are not fully representative of all SR‐investors.
Practical implications
Since there are segments of SR‐investors that invest in SRI because of different reasons, there is an opportunity for SRI providers to target and adapt communication to certain segments.
Originality/value
For both academia and the SRI industry this study provides useful knowledge on how private SR‐investors handle the issue of financial return and social responsibility when investing in SRI. This understanding of the differing motivations of the SR‐investor also holds practical importance for developing appropriate marketing strategies within the SRI industry.
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