Heads we win, tails you lose: Is there equity in Islamic equity funds?

• Main Authors: Mustaffa Kamil, Nazrol Kamil, Alhabshi, Syed O., Bacha, Obiyathulla I., Masih, Mansur
• Format: Article
• Language: English
• Published: Elsevier 2014
• Subjects: HG4501 Stocks, investment, speculation
• Online Access: http://irep.iium.edu.my/41388/1/PACFIN649_-_Published_Version.pdf; http://irep.iium.edu.my/41388/; http://www.elsevier.com/locate/pacfin

We made the first estimate of the proportion of fund alpha statistically attributable to luck rather than skill for a sample of Malaysian Islamic equity funds. Broadly, the funds do not outperform market benchmarks. In the limited instances where performance is superior, based on a contemporary methodology, as much as 47% of the observed positive fund alpha is statistically attributable to luck. Thus, at 5% significance level, we find only 1.95% of our funds to be genuinely skilled. Our findings raise questions regarding the equitability of these funds levying fixed fees, making a case for potential innovation in fund remuneration structure.