Does faith has impact on investment return: evidence from REITs
Abstract
This paper investigates whether faith has impact on investment returns. Specifically, we choose the Shariah compliance and REITs investment for the purpose of investigation. Synthetic Shariah compliant portfolios are constructed with various interpretation of compliance. We compare the performance of Shariah compliant portfolios with US Equity REIT portfolio during 1993–2017 by examining the abnormal returns using CAPM and Carhart four-factor model. We find no evidence of underperformance or outperformance of the Shariah compliant investments. This is also true during the financial crisis periods which is confirmed by the sub-sample analysis. Our findings suggest that Shariah compliant REIT investor faces no cost or gain in his investments as a result of his faith.
Keyword : Shariah compliance, Real Estate Investment Trusts (REIT), faith-based investment, Islamic finance, risk-adjusted performance
How to Cite
Zhang, W., Sun, T., Wang, Z., Kumar, V. R., & Ma, Y. (2019). Does faith has impact on investment return: evidence from REITs. International Journal of Strategic Property Management, 23(6), 378-389. https://doi.org/10.3846/ijspm.2019.10428
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ajmi, A. N., Hammoudeh, S., Nguyen, D. K., & Sarafrazi, S. (2014). How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests. Journal of International Financial Markets, Institutions and Money, 28, 213-227. https://doi.org/10.1016/j.intfin.2013.11.004
Akinsomi, O., Ong, S. E., Ibrahim, M. F., & Newell, G. (2014). The idiosyncratic risks of a Shariah compliant REIT investor. Journal of Property Research, 31(3), 211-243. https://doi.org/10.1080/09599916.2013.841276
Alam, N., & Rajjaque, M. S. (2010). Shariah-compliant equities: empirical evaluation of performance in the European market during credit crunch. Journal of Financial Services Marketing, 15(3), 228-240. https://doi.org/10.1057/fsm.2010.19
Alhenawi, Y., & Hassan, K. (2013). What does the US REIT market have in store for nonconventional investors? The case of Shariah compliance. Journal of Investing, 22(4), 61-82. https://doi.org/10.3905/joi.2013.22.4.061
Al-Khazali, O., Lean, H., & Samet, A. (2014). Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach. Pacific-Basin Finance Journal, 28, 2946. https://doi.org/10.1016/j.pacfin.2013.09.003
Bauer, R., Otten, R., & Rad, A. T. (2006). Ethical investing in Australia: is there a financial penalty? Pacific-Basin Finance Journal, 14(1), 33-48. https://doi.org/10.1016/j.pacfin.2004.12.004
Białkowski, J., Etebari, A., & Wisniewski, T. P. (2012). Fast profits: investor sentiment and stock returns during Ramadan. Journal of Banking & Finance, 36(3), 835-845. https://doi.org/10.1016/j.jbankfin.2011.09.014
Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52, 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
Chan, S. H., Leung, W. K., & Wang, K. (2005). Changes in REIT structure and stock performance: evidence from the Monday stock anomaly. Real Estate Economics, 33(1), 89-120. https://doi.org/10.1111/j.1080-8620.2005.00113.x
Chiang, K. C., Kozhevnikov, K., Lee, M. L., & Wisen, C. H. (2008). Further evidence on the performance of funds of funds: the case of real estate mutual funds. Real Estate Economics, 36(1), 47-61. https://doi.org/10.1111/j.1540-6229.2008.00206.x
Chuweni, N. N., Eves, C., Hoang, V. N., Isik, I., & Hassan, M. K. (2017). How efficient are alternative financial institutions? An empirical investigation of Islamic REITs in Malaysia. Journal of Real Estate Literature, 25(1), 107-139.
Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 51-63. https://doi.org/10.2469/faj.v61.n2.2716
El-Gamal, M. (2000). A basic guide to contemporary Islamic banking and finance (pp. 7-49). Rice University Business Publications. Retrieved from http://www.ruf.rice.edu/~elgamal/files/primer.pdf
Geczy, C., Stambaugh, R., & Leven, D. (2005). Investing in socially responsible mutual funds. SSRN. Retrieved from http://ssrn.com/abstract=416380
Girard, E. C., & Hassan, M. K. (2008). Is there a cost to faith-based investing: evidence from FTSE Islamic indices. The Journal of Investing, 17(4), 112-121. https://doi.org/10.3905/JOI.2008.17.4.112
Hakim, S., & Rashidian, M. (2004). Risk and return of Islamic stock market indexes. Paper presented at International Seminar of Non-bank Financial Institutions: Islamic Alternatives, Kuala Lumpur, Malaysia.
Hamilton, S., Jo, H., & Statman, M. (1993). Doing well while doing good? The investment performance of socially responsible mutual funds. Financial Analysts Journal, 49(6), 62-66. https://doi.org/10.2469/faj.v49.n6.62
Hamzah, A. H., Rozali, M. B., & Tahir, I. M. (2010). Empirical investigation on the performance of the Malaysian real estate investment trusts in pre-crisis, during crisis and post-crisis period. International Journal of Economics and Finance, 2(2), 62. https://doi.org/10.5539/ijef.v2n2p62
Ho, C., Rahman, N., Yusuf, N., & Zamzamin, Z. (2014). Performance of global Islamic versus conventional share indices: international evidence. Pacific-Basin Finance Journal, 28, 110-121. https://doi.org/10.1016/j.pacfin.2013.09.002
Hoepner, A. G., Rammal, H. G., & Rezec, M. (2011). Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries. The European Journal of Finance, 17(9-10), 829-850. https://doi.org/10.1080/1351847X.2010.538521
Hussein, K., & Omran, M. (2005). Ethical investment revisited: evidence from Dow Jones Islamic indexes. Journal of Investing, 14(3), 105-124. https://doi.org/10.3905/joi.2005.580557
Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49(3), 283-306. https://doi.org/10.1016/S0304-405X(98)00026-9
Ibrahim, M. F., & Ong, S. E. (2008). Shariah compliance in real estate investment. Journal of Real Estate Portfolio Management, 14(3), 401-414.
Kok, S., Giorgioni, G., & Laws, J. (2009). Performance of Shariah-compliant indices in London and NY stock markets and their potential for diversification. International Journal of Monetary Economics and Finance, 2(3-4), 398-408. https://doi.org/10.1504/IJMEF.2009.029071
Krasicka, M. O., & Nowak, S. (2012). What’s in it for me? A primeron differences between Islamic and conventional finance in Malaysia (No. 12-151). International Monetary Fund. https://doi.org/10.5089/9781475504224.001
Lahsasna, A., & Hassan, M. K. (2012). The Shariah process in product development and approval in ICM. In M. K. Hassan & M. Mahlknecht (Eds.), Islamic Capital Markets: Products and Strategies (pp. 23-68). https://doi.org/10.1002/9781119206040.ch2
Lightstone, J., & Woods, G. (2007). Using quantitative stock selection to offer sharia-compliant strategies access to all equity styles: comparison with conventional benchmarks and implications for asset al.ocation and style rotation. Islamic Finance World.
Luther, R. G., Matatko, J., & Corner, D. C. (1992). The investment performance of UK “ethical” unit trusts. Accounting, Auditing & Accountability Journal, 5(4). https://doi.org/10.1108/09513579210019521
Malaysia’s Islamic Finance Marketplace. (2014). Shariah compliance in all matters the priority of a robust Islamic finance ecosystem. Retrieved from http://www.mifc.com/index.php?ch=28&pg=72&ac=67&bb=uploadpdf
Newell, G., & Osmadi, A. (2009). The development and preliminary performance analysis of Islamic REITs in Malaysia. Journal of Property Research, 26(4), 329-347. https://doi.org/10.1080/09599916.2009.485417
Ong, T. S., Teh, B. H., Soh, C. H., & Yan, Y. L. (2012). Malaysian real estate investment trusts: a performance and comparative analysis. International Journal of Economics and Finance, 4(5), 73. https://doi.org/10.5539/ijef.v4n5p73
Porter, M. E., & Van der Linde, C. (1999). Green and competitive: ending the stalemate. Journal of Business Administration and Policy Analysis, 215.
PricewaterhouseCoopers. (2017). Shariah-compliant funds: a whole new world of investment. PwC Asset Management Report (pp. 2-29).
Razali, M. N., & Sing, T. F. (2015). Systematic risk of Islamic REITs and conventional REITs in Malaysia. Journal of Real Estate Portfolio Management, 21(1), 77-92.
Rozman, A. T., Azmi, N. A., Mohd Ali, H., & Mohamed Razali, N. M. (2015). The performance and significance of Islamic REITs in a mixed-asset portfolio. Jurnal Teknologi, 77(26), 1-9. https://doi.org/10.11113/jt.v77.6850
Shamsudin, M. Y., Salamon, H., & Abu-Hussin, M. F. (2014). Form and substance in Islamic finance: analysis of deferred payment sales. UMRAN-International Journal of Islamic and Civilizational Studies, 1(1). https://doi.org/10.11113/umran2014.1n1.13
Sing, T. F., & Loh, K. W. (2014). Predictability of Shariah-compliant stock and real estate investments. International Real Estate Review, 17(1), 23-46.
Walley, N., & Whitehead, B. (1994). It’s not easy being green. Reader in Business and the Environment, 36, 81.
World Bank (2016). Islamic finance a catalyst for shared prosperity? Global Report on Islamic Finance (pp. 3-251). Washington DC: World Bank Group.
Abdullah, N. A. H., Zahari, W., & Marazah, W. (2011). Performance of property listed companies in Malaysia: 1996–2007. Paper presented at Global Business and Social Sciences Research Conference, 20–21 June 2011, Beijing, China. (Unpublished)
Ajmi, A. N., Hammoudeh, S., Nguyen, D. K., & Sarafrazi, S. (2014). How strong are the causal relationships between Islamic stock markets and conventional financial systems? Evidence from linear and nonlinear tests. Journal of International Financial Markets, Institutions and Money, 28, 213-227. https://doi.org/10.1016/j.intfin.2013.11.004
Akinsomi, O., Ong, S. E., Ibrahim, M. F., & Newell, G. (2014). The idiosyncratic risks of a Shariah compliant REIT investor. Journal of Property Research, 31(3), 211-243. https://doi.org/10.1080/09599916.2013.841276
Alam, N., & Rajjaque, M. S. (2010). Shariah-compliant equities: empirical evaluation of performance in the European market during credit crunch. Journal of Financial Services Marketing, 15(3), 228-240. https://doi.org/10.1057/fsm.2010.19
Alhenawi, Y., & Hassan, K. (2013). What does the US REIT market have in store for nonconventional investors? The case of Shariah compliance. Journal of Investing, 22(4), 61-82. https://doi.org/10.3905/joi.2013.22.4.061
Al-Khazali, O., Lean, H., & Samet, A. (2014). Do Islamic stock indexes outperform conventional stock indexes? A stochastic dominance approach. Pacific-Basin Finance Journal, 28, 2946. https://doi.org/10.1016/j.pacfin.2013.09.003
Bauer, R., Otten, R., & Rad, A. T. (2006). Ethical investing in Australia: is there a financial penalty? Pacific-Basin Finance Journal, 14(1), 33-48. https://doi.org/10.1016/j.pacfin.2004.12.004
Białkowski, J., Etebari, A., & Wisniewski, T. P. (2012). Fast profits: investor sentiment and stock returns during Ramadan. Journal of Banking & Finance, 36(3), 835-845. https://doi.org/10.1016/j.jbankfin.2011.09.014
Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52, 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
Chan, S. H., Leung, W. K., & Wang, K. (2005). Changes in REIT structure and stock performance: evidence from the Monday stock anomaly. Real Estate Economics, 33(1), 89-120. https://doi.org/10.1111/j.1080-8620.2005.00113.x
Chiang, K. C., Kozhevnikov, K., Lee, M. L., & Wisen, C. H. (2008). Further evidence on the performance of funds of funds: the case of real estate mutual funds. Real Estate Economics, 36(1), 47-61. https://doi.org/10.1111/j.1540-6229.2008.00206.x
Chuweni, N. N., Eves, C., Hoang, V. N., Isik, I., & Hassan, M. K. (2017). How efficient are alternative financial institutions? An empirical investigation of Islamic REITs in Malaysia. Journal of Real Estate Literature, 25(1), 107-139.
Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 51-63. https://doi.org/10.2469/faj.v61.n2.2716
El-Gamal, M. (2000). A basic guide to contemporary Islamic banking and finance (pp. 7-49). Rice University Business Publications. Retrieved from http://www.ruf.rice.edu/~elgamal/files/primer.pdf
Geczy, C., Stambaugh, R., & Leven, D. (2005). Investing in socially responsible mutual funds. SSRN. Retrieved from http://ssrn.com/abstract=416380
Girard, E. C., & Hassan, M. K. (2008). Is there a cost to faith-based investing: evidence from FTSE Islamic indices. The Journal of Investing, 17(4), 112-121. https://doi.org/10.3905/JOI.2008.17.4.112
Hakim, S., & Rashidian, M. (2004). Risk and return of Islamic stock market indexes. Paper presented at International Seminar of Non-bank Financial Institutions: Islamic Alternatives, Kuala Lumpur, Malaysia.
Hamilton, S., Jo, H., & Statman, M. (1993). Doing well while doing good? The investment performance of socially responsible mutual funds. Financial Analysts Journal, 49(6), 62-66. https://doi.org/10.2469/faj.v49.n6.62
Hamzah, A. H., Rozali, M. B., & Tahir, I. M. (2010). Empirical investigation on the performance of the Malaysian real estate investment trusts in pre-crisis, during crisis and post-crisis period. International Journal of Economics and Finance, 2(2), 62. https://doi.org/10.5539/ijef.v2n2p62
Ho, C., Rahman, N., Yusuf, N., & Zamzamin, Z. (2014). Performance of global Islamic versus conventional share indices: international evidence. Pacific-Basin Finance Journal, 28, 110-121. https://doi.org/10.1016/j.pacfin.2013.09.002
Hoepner, A. G., Rammal, H. G., & Rezec, M. (2011). Islamic mutual funds’ financial performance and international investment style: evidence from 20 countries. The European Journal of Finance, 17(9-10), 829-850. https://doi.org/10.1080/1351847X.2010.538521
Hussein, K., & Omran, M. (2005). Ethical investment revisited: evidence from Dow Jones Islamic indexes. Journal of Investing, 14(3), 105-124. https://doi.org/10.3905/joi.2005.580557
Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics, 49(3), 283-306. https://doi.org/10.1016/S0304-405X(98)00026-9
Ibrahim, M. F., & Ong, S. E. (2008). Shariah compliance in real estate investment. Journal of Real Estate Portfolio Management, 14(3), 401-414.
Kok, S., Giorgioni, G., & Laws, J. (2009). Performance of Shariah-compliant indices in London and NY stock markets and their potential for diversification. International Journal of Monetary Economics and Finance, 2(3-4), 398-408. https://doi.org/10.1504/IJMEF.2009.029071
Krasicka, M. O., & Nowak, S. (2012). What’s in it for me? A primeron differences between Islamic and conventional finance in Malaysia (No. 12-151). International Monetary Fund. https://doi.org/10.5089/9781475504224.001
Lahsasna, A., & Hassan, M. K. (2012). The Shariah process in product development and approval in ICM. In M. K. Hassan & M. Mahlknecht (Eds.), Islamic Capital Markets: Products and Strategies (pp. 23-68). https://doi.org/10.1002/9781119206040.ch2
Lightstone, J., & Woods, G. (2007). Using quantitative stock selection to offer sharia-compliant strategies access to all equity styles: comparison with conventional benchmarks and implications for asset al.ocation and style rotation. Islamic Finance World.
Luther, R. G., Matatko, J., & Corner, D. C. (1992). The investment performance of UK “ethical” unit trusts. Accounting, Auditing & Accountability Journal, 5(4). https://doi.org/10.1108/09513579210019521
Malaysia’s Islamic Finance Marketplace. (2014). Shariah compliance in all matters the priority of a robust Islamic finance ecosystem. Retrieved from http://www.mifc.com/index.php?ch=28&pg=72&ac=67&bb=uploadpdf
Newell, G., & Osmadi, A. (2009). The development and preliminary performance analysis of Islamic REITs in Malaysia. Journal of Property Research, 26(4), 329-347. https://doi.org/10.1080/09599916.2009.485417
Ong, T. S., Teh, B. H., Soh, C. H., & Yan, Y. L. (2012). Malaysian real estate investment trusts: a performance and comparative analysis. International Journal of Economics and Finance, 4(5), 73. https://doi.org/10.5539/ijef.v4n5p73
Porter, M. E., & Van der Linde, C. (1999). Green and competitive: ending the stalemate. Journal of Business Administration and Policy Analysis, 215.
PricewaterhouseCoopers. (2017). Shariah-compliant funds: a whole new world of investment. PwC Asset Management Report (pp. 2-29).
Razali, M. N., & Sing, T. F. (2015). Systematic risk of Islamic REITs and conventional REITs in Malaysia. Journal of Real Estate Portfolio Management, 21(1), 77-92.
Rozman, A. T., Azmi, N. A., Mohd Ali, H., & Mohamed Razali, N. M. (2015). The performance and significance of Islamic REITs in a mixed-asset portfolio. Jurnal Teknologi, 77(26), 1-9. https://doi.org/10.11113/jt.v77.6850
Shamsudin, M. Y., Salamon, H., & Abu-Hussin, M. F. (2014). Form and substance in Islamic finance: analysis of deferred payment sales. UMRAN-International Journal of Islamic and Civilizational Studies, 1(1). https://doi.org/10.11113/umran2014.1n1.13
Sing, T. F., & Loh, K. W. (2014). Predictability of Shariah-compliant stock and real estate investments. International Real Estate Review, 17(1), 23-46.
Walley, N., & Whitehead, B. (1994). It’s not easy being green. Reader in Business and the Environment, 36, 81.
World Bank (2016). Islamic finance a catalyst for shared prosperity? Global Report on Islamic Finance (pp. 3-251). Washington DC: World Bank Group.