TITLE:
Co-Movement, Dependence Structure and Ethical Investment Funds under GFC
AUTHORS:
Robin Hang Luo, M. Ishaq Bhatti
KEYWORDS:
Co-Movement, Dependence Structure, Ethical Investment, Islamic Mutual Funds, Copula, EVT
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.6,
August
14,
2019
ABSTRACT: This paper extends the
recent work of Mansor et al. [1] who
use panel regression to measure ethics based Islamic mutual fund performance
and note the various methodological issues in this respect. We attempt to
capture the co-movement and dependence structure of the fund index with five
major equity indices before and during the Global financial crises (GFC). Four
models—CAPM, normal Copula, symmetrised Joe-Clayton Copula and Rotated Gumbel Copula—are used to analyse
the co-movement and dependence structure of Islamic investment funds. Our
findings show that the ethical investment funds have low dependence with the
major market indices. The fluctuations in the financial markets in the U.S., the
U.K., Germany and Japan are less likely to affect the Islamic investment funds than
other financial assets. However, the time-varying dependence increases
dramatically during the GFC indicating that the diversification merits of
Islamic equity funds in the portfolio deteriorate in the bear market. Some of the
empirical results drawn in this paper will raise awareness among both
academicians and financiers about the importance of Islamic investment funds
during and out of crises periods.