Do ethics imply persistence? The case of Islamic and socially responsible funds

We analyze the performance persistence of Islamic and Socially Responsible Investment (SRI) mutual funds. We adopt a multi-stage strategy in which, in the first stage, partial frontiers’ approaches are considered to measure the performance of the different funds in the sample. In the second stage, the results yielded by the partial frontiers are plugged into different investment strategies based on a recursive estimation methodology whose persistence performance is evaluated in the third stage of the analysis. Results indicate that, for both types of funds, performance persistence actually exists, but only for the worst and, most notably, best funds. This result is robust not only across methods (and different choices of tuning parameters within each method) but also across both SRI and Islamic funds—although in the case of the latter persistence was stronger for the best funds. The persistence of SRI and Islamic funds represents an important result for investors and the market, since it provides information on both which funds to invest in and which funds to avoid. Last but not least, the use of the aforementioned techniques in the context of mutual funds could also be of interest for the non-conclusive literature

On the comparative performance of socially responsible and Islamic mutual funds

This is the first study to provide comprehensive analyses of the relative performance of both socially responsible investment (SRI) and Islamic mutual funds. The analysis proceeds in two stages. In the first, the performance of the two categories of funds is measured using partial frontier methods. In the second stage, we use quantile regression techniques. By combining two variants of the Free Disposal Hull (FDH) methods (order-m and order-α) in the first stage of analysis and quantile regression in the second stage, we provide detailed analyses of the impact of different covariates across methods and across different quantiles. In spite of the differences in the screening criteria and portfolio management of both types of funds, variation in the performance is only found for some of the quantiles of the conditional distribution of mutual fund performance. We established that for the most inefficient funds the superior performance of SRI funds is significant. In contrast, for the best mutual funds this evidence vanished and even Islamic funds perform better than SRI. These results show the benefits of performing the analysis using quantile regression

Is ethical money sensitive to past returns? The case of portfolio constraints and persistence in Islamic funds.

In this paper, we analyze the performance persistence and survivorship bias of Islamic funds. The remarkable growth of these types of ethical funds raises the question of how non-financial attributes, including beliefs and value systems, influence performance and its persistence. A procedure commonly used in prior literature to assess persistence is the measuring of the performance of investment strategies based on past performance. In this context, we propose a refined version of this methodology that controls the cross-sectional significance of the performance of these strategies. This procedure correctly identifies whether abnormal performance is due to a dynamic investment strategy based on past performance, or whether it is obtained by investing in a particular set of mutual funds. The significance of the persistence varies depending on the time horizon (yearly/half-yearly), survivorship, or the tail of the distribution. In particular, we find that persistence only exists for the best funds, whereas for the worst funds, the results are not significant

Environmental Conditions, Fund Characteristics, and Islamic Orientation: An Analysis of Mutual Fund Performance for the MENA Region

Islamic funds are an upcoming alternative to conventional funds, aided by the increasing prominence of Islamic finance. This paper contributes to the extant literature by comparing the performance of Islamic and conventional funds during crisis and recovery periods. In contrast to most previous literature, we focus on the countries of the Middle East and North African region (MENA), which represent an appealing context to study both from a financial and socioeconomic point of view due to recent events in the area. To this end, we consider a linear model control- ling for the bias of omitting relevant benchmarks. Although this methodology is now widely accepted in the financial literature, it is less common when evaluating Islamic mutual funds, but it is particularly appropriate when the aim is to focus on markets where Shariah-compliant investments are in home territory. Our results show that the relative performance of Islamic and conventional funds must be tempered by several factors such as the (geographical) context in which the investment is made. Considering all the MENA region, Islamic funds perform, on average, slightly worse than conventional funds. However, if the analysis is restricted to GCC countries, the result is the opposite. This evidence holds for both crisis and recovery periods. In addition, the performance gap between the two types of funds either widens or shrinks when considering recovery or crisis times, reinforcing the views that Islamic funds are more stable in hazardous time

Disentangling the European airlines efficiency puzzle: A network Data Envelopment Analysis approach

In recent years the European airline industry has undergone critical restructuring. It has evolved from a highly regulated market predominantly operated by national airlines to a dynamic, liberalized industry where airline firms compete freely on prices, routes, and frequencies. Although several studies have analyzed performance issues for European airlines using a variety of efficiency measurement methods, virtually none of them has considered two-stage alternatives – not only in this particular European context but in the airline industry in general. We extend the aims of previous contributions by considering a network Data Envelopment Analysis (network DEA) approach which comprises two sub-technologies that can share part of the inputs. Results show that, in general, most of the inefficiencies are generated in the first stage of the analysis. However, when considering different types of carriers several differences emerge – most of the low-cost carriers’ inefficiencies are confined to the first stage. Results also show a dynamic component, since performance differed across types of airlines during the decade 2000–2010

Devolution dynamics of Spanish local government

Over the last few years, ther has been a devolutionary tendency in many developed and developing countries. In this article we propose a methodology to decompose whether the benefits in terms of effciency derived from transfers of powers from higher to municipal levels of government "the "economic dividend" of devolution) might increase over time. This methodology is based on linear programming approaches for effciency measurement. We provide anapplication to Spanish municipalities, which have had to adapt to both the European Stability and Growth Pact as well as to domestic regulation seeking local governments balanced budget. Results indicate that efficiency gains from enhaced decentralization have increased over time. However, the way through which these gains accrue differs across municipalities -in some cases technical change is the main component, whereas in others catching up dominates

On the determinants of local government debt: Does one size fit all?

This paper analyzes the factors that directly influence levels of debt in Spanish local governments. Specifically, the main objective is to find out the extent to which indebtedness is originated by controllable factors that public managers can influence, or whether it hinges on other variables beyond managers’ control. The importance of this issue has intensified since the start of the crisis in 2007, due to the abrupt decline of revenues and, simultaneously, to the stagnation (or even increase) in the levels of costs facing these institutions face. Results can be explored from multiple perspectives, given that the set of explanatory factors is also multiple. However, the most interesting result relates to the varying effect of each covariate depending on each municipality’s specific debt level, which suggests that economic policy recommendations should not be homogeneous across local governments

Data for: Does social capital matter for European regional growth?

Abstract of associated article: This paper analyzes the role of different elements of social capital in economic growth for a sample of 85 European regions during the period 1995–2008. Despite the remarkable progress that social capital and European regional economic growth literatures have experienced over the last two decades, initiatives combining the two are few, and entirely yet to come for the post-1990s period. Recent improvements in data availability allow this gap in the literature to be closed, since they enable the researcher to consider the traditionally disregarded Eastern and Central European (ECE) regions. This is particularly interesting, as they are all transition economies that recently joined the European Union, with relatively low levels of social capital. On the methodological side, we follow the Bayesian paradigm, which enables us to make direct inferences on the parameters to be estimated and deal with parameter uncertainty, leading to a deeper understanding of the relationships being investigated. In particular, we analyze three indicators of social capital, namely social trust, associational activities and social norms. Results suggest that the two former might have some implications for regional growth while social norms are a weaker predictor for growth

Rethinking banking and finance: Money, markets and models

The papers included in this special issue have been selected from the papers presented at the 2012 International Finance and Banking Society (IFABS) conference that was held in Valencia on 18–20 June, 2012, in collaboration with the University of Leicester, United Kingdom, University of Valencia and University of Jaume I, Spain. The conference theme on “Rethinking Banking and Finance: Money, Markets and Models” was highly relevant since the effects of the financial crisis of 2008 have caused many, but by no means all economists and finance specialists to “rethink” their models of financial markets. As models have become progressively more rarified and disconnected from the practices and structures of actual financial markets then they have become less useful for generating insight and understanding of the complexities of modern economies. These models provide highly general results for economies that are stripped of institutional detail. Empirical models also estimate very general relationships and ignore the underlying processes and mechanisms that generate the results. All these challenges, reshaping the financial economics research agenda in a way that leads us to “rethink” the banking and finance research that delves below the surface appearances of economic and financial relationships. The papers in this special issue cover a wide range of contemporary issues in banking and finance research and aim to improve our understanding of the global financial crisis and shed more light on the challenges ahead. We group the contributions in three areas: financial intermediation, risk analysis, and other research issues in finance