Religion based investing and illusion of Islamic Alpha and Beta

摘要

Among the recent literature, that compares the performance of Islamic and conventional mutual funds, two important dimensions have been widely neglected. First, it is possible due to the diverse segments of the market that mutual funds invest in, that the funds' asset classes or investment styles play a role in the performance differential between Islamic and conventional mutual funds. Second, the higherreturnsand lowerrisk,the two cornerstones of the perceived superiority of Islamic funds, could possibly be driven by cross-country differences. This study fills this void and presents empirical evidence on Islamic mutual funds across multiple investment styles for Malaysia and Pakistan, which collectively hold 31% of the total number of Islamic funds around the world. The results suggest that the notion of a global higherIslamic Alphaand lowerIslamic Betadoes not exist. The superior performance of Islamic mutual funds is no more than an illusion as any differential can be attributed either to the country differences or to a particular investment style.