COMPARISON OF ISLAMIC EQUITY FUNDS & CONVENTIONAL EQUITY FUNDS USING CAPM

Abstract

Purpose In Pakistan and whether the returns generated by Islamic equity funds are at par with conventional equity funds in Pakistan. It was also to highlight the performance of Islamic equity funds and whether they provide a viable alternative to conventional equity funds. Methodology/sample A sample of 19 companies was taken with data relating to the period 2010-2014. All companies are listed on the Karachi stock exchange (KSE) and two portfolios were adequately comparing the performance of both of them. Funds with less than 30 weekly observations and/or 15 missing data points were excluded from the sample. The portfolio analysis measures the Sharpe ratio, Jensen’s alpha and Trynor ratio were used for analysis purposes. Regression was also applied to gauge whether the risk and return factors had any significant relationship between them so as to provide a more accurate picture. Findings The results showed that the Islamic equity funds have low co movement with the market so they perform better in the bearish market. So, this study confirmed that the Islamic equity funds are the good hedging investments. The study also concluded that mostly, the Islamic equity funds showed the negative values of the average relative betas that concluded their good performance. The study also concluded that the Islamic equity investments showed the negative diversification values meaning that they are well diversified as compared to the conventional equity funds.