We made the first estimate of the proportion of fund alpha statistically attributable to luck rather than skill for a sample of Malaysian Islamic equity funds. Broadly, the funds do not outperform market benchmarks. In the limited instances where performance is superior, based on a contemporary methodology, as much as 47% of the observed positive fund alpha is statistically attributable to luck. Thus, at 5% significance level, we find only 1.95% of our funds to be genuinely skilled. Our findings raise questions regarding the equitability of these funds levying fixed fees, making a case for potential innovation in fund remuneration structure.
Islamic equity funds, Luck versus skill, Performance measurement
M. Kamil, Nazrol K., Alhabshi, Syed Othman, Bacha, Obiyathulla Ismath & Mohammed Masih, Abul Mansur. (2014). Heads we win, tails you lose: is there equity in Islamic equity funds? Pacific-Basin Finance Journal, 28, pp. 7–28.