Islamic mutual funds: Seasonal patterns and determinants of performance across regions

Abstract

Our study aims to investigate the seasonal patterns of returns and evaluate the effects that various factors have on the performance in a large data set (125 funds) of Islamic mutual funds from four regions: Asia‐Pacific, North America, Europe, and the Middle East and North Africa (MENA). We employed indicators for consumer sentiment, economic policy uncertainty, implied stock market volatility, the trade‐weighted US dollar, the Carhart (1997) risk factors, and idiosyncratic risk. Our findings indicate that the seasonal patterns and determinants of Islamic mutual funds' financial performance tend to differ significantly across the regions. This may be explained by the different cultural/religious settings, the different backgrounds of the market participants as well as differences in the holiday seasons and end of fiscal year/taxation across regions/countries. Global fund managers and investors may benefit from the obtained results when constructing portfolios and designing hedging strategies.