The Resilience of Islamic Equity Funds during COVID-19: Evidence from Risk Adjusted Performance, Investment Styles and Volatility Timing

Abstract

This paper analyses the risk-adjusted performance of Islamic and conventional equity funds during three stages of the COVID-19 pandemic. We show that Islamic equity funds demonstrated differentials in risk-adjusted performance, investment styles, and volatility timing compared to their conventional counterparts. Specifically, the results revealed that Islamic equity funds are more resilient to COVID-19 shock, since they outperformed non-Islamic counterparts during the peak months of the pandemic. These findings confirm the safe haven properties of Islamic equity funds, which is useful for investors aiming to hedge pandemic risks. The style analysis reveals investment drift from riskier styles to more prudent options in response to the uncertainties underlying each stage. The results suggest policy makers should further investigate Islamic financial assets and their underlying principles to improve the resilience of financial systems in any future black swan events.