Performance of Islamic Funds Project

Project Team

Project Objectives

Do Islamic funds rebalance their portfolios around major Islamic indices revisions?

  • 1. What effect do major Islamic Indices (e.g., Financial Times, MSCI, S&P Dow Jones) revisions have on Islamic funds’ portfolio rebalancing? Or do Islamic funds rebalance their portfolios around major Islamic indices revisions? The sample of Islamic funds have to be an international one as this will improve the chances of getting the paper(s) published in an A or B journal (e.g., Journal of Business Ethics, Journal of Banking & Finance or Pacific-Basin Finance Journal).
  • 2. Islamic funds’ portfolios include companies that are Shariah compliant. These companies are listed in both developed and well-functioning emerging economies and are incorporated in the major Islamic Indices (e.g. Dow Jones, Morgan Stanley Capital International, Financial Times and S&P 500 Shariah). The first aim of the project would be to examine the impact of major Islamic indices revisions (additions and deletions) on the stock returns of companies listed in emerging and developed markets. Our prior expectation is that companies listed in emerging markets would generate higher positive (negative) abnormal returns following their inclusion (exclusion) from one of the major Islamic Indices. The rationale is that these companies are less known to investment analysts and fund managers when compared to companies listed in development markets (e.g. New York Stock Exchange). For example, the Dow Jones Islamic Index includes companies from 55 countries. We can combine the transaction and market depth data with the sentiment measures data since they are both time stamped. Further, we will examine the impact of Islamic indices revisions on the volume of trading and test if there is a shift in the imbalance between buyer initiated (for added companies) and seller initiated (for the deleted companies) from the Islamic indices.

The second objective of the project is to examine if and when fund managers of Islamic funds rebalance their portfolios. Do they rebalance their portfolios before or soon after the major Islamic indices revisions? It would reasonable to expect active managers to anticipate major indices revisions and rebalance their portfolios before the announcements. This may no necessarily be the case for passive funds. We should also examine the performance of Islamic funds vs conventional funds

The schedule of the project can be found here

The current draft of the literature review can be found here