Relative performance of religious and ethical investment funds

Abstract

Purpose

This paper updates the literature regarding the performance of constrained US mutual funds by looking at the relative performance of Christian mutual funds, socially responsible funds and Islamic funds. This paper aims to rank the performance of religious and ethical investment funds.

Design/methodology/approach

This study uses monthly returns from 2005 to 2015 to perform traditional asset pricing models as well as data envelopment analysis to determine rank.

Findings

Islamic mutual funds outperform socially responsible funds, which then outperform Christian-based mutual funds; these results are also consistent during the latest 2007-2008 crisis period. The results are robust to different performance metrics and benchmarks. Moreover, this paper reports a significant amount of money “left on the table” by investing in constraint funds and disregarding the sin industry which shows an ethical dilemma for investors.

Practical implications

Investors who seek to invest morally/ethically can be informed of the cost of doing so. They can also compare portfolio with others that have similar holdings and constraints.

Originality/value

This paper not only includes Christian mutual funds in the research but also provides the performance of all constrained assets. It also compares religious funds with “SIN” industry, and thus quantifies the cost of “doing right.”

Citation

Castro, E., Hassan, M.K., Rubio, J.F. and Halim, Z.A. (2020), "Relative performance of religious and ethical investment funds", Journal of Islamic Accounting and Business Research, Vol. 11 No. 6, pp. 1227-1244. https://doi.org/10.1108/JIABR-04-2019-0084