Ethical screening and financial performance : the case of Islamic equity funds

Nainggolan, Yunieta, How, Janice, & Verhoeven, Peter (2015) Ethical screening and financial performance : the case of Islamic equity funds. Journal of Business Ethics.

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Whether ethical screening affects portfolio performance is an important question that is yet to be settled in the literature. This paper aims to shed further light on this question by examining the performance of a large global sample of Islamic equity funds (IEFs) from 1984 to 2010. We find that IEFs underperform conventional funds by an average of 40 basis points per month, consistent with the underperformance hypothesis. In line with popular media claims that Islamic funds are a safer investment, IEFs outperformed conventional funds during the recent banking crisis. However, we find no such outperformance for other crises or high volatility periods. Based on fund holdings-based data, we provide evidence of a negative curvilinear relation between fund performance and ethical screening intensity, consistent with a return trade-off to being more ethical.

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2 citations in Scopus
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1 citations in Web of Science®

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ID Code: 81843
Item Type: Journal Article
Refereed: Yes
Keywords: Ethical investments, Ethical screening, Fund performance, Islamic equity funds
DOI: 10.1007/s10551-014-2529-5
ISSN: 0167-4544
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2015 Springer Science+Business Media Dordrecht
Deposited On: 17 Feb 2015 22:29
Last Modified: 18 Feb 2015 22:46

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