Heads we win, tails you lose: is there equity in Islamic equity funds?
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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.
Islamic equity funds , Luck versus skill , Performance measurement
Mustaffa Kamil, N. K., Alhabshi, S. O., Bacha, O. I., & Mohammed Masih, A. M. (2014). Heads we win, tails you lose: is there equity in Islamic equity funds? Pacific-Basin Finance Journal, 28, pp. 7–28. https://doi.org/10.1016/j.pacfin.2013.09.004