Analysis of Selectivity, Timing, Persistence and Correlation of Islamic vs. Conventional Saudi Mutual Funds

Abstract

: The purpose of this study was to evaluate the selectivity and timing performance and persistence in active Saudi mutual funds through a comparative work involving 100 Islamic funds against 51 conventional funds trading in Saudi TADAWUL stock Exchange from 2010 to 2015. We have split each group based on 6 regional investment categories: Local, International, Arab, Asian, European and American (US). We employed specific models to assess selectivity and timing performance. Then we investigated their persistence. Findings indicated superior selectivity with Arab Islamic funds compared to conventional peers and similar negative selectivity in both Islamic and conventional International funds. In addition, there was evidence of selectivity with US conventional funds, and none with Islamic peers. Furthermore, results showed significantly higher timing with local and Arab conventional funds compared to their respective Islamic peers. As for the performance persistence, there were signs of selectivity and timing persistence for both Islamic and conventional funds, mostly on local, International and Arab levels. Nevertheless, Islamic funds’ performance persistence in both skills was longer. Finally, both Islamic and conventional selectivity and timing were negatively correlated overall, indicating skills’ mutual exclusiveness and specialization. We recommend studying a larger sample, for a longer period. Different grouping may be applied, based on asset classes, i.e. Equity, Bond, Balanced, Income, etc. The study can even extend to a multi-market or multi-regional investigation i.e. MENA region.