What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry

In the Malaysian unit trust funds (UTFs) industry, the performance of funds is often below the market portfolio and risk-free returns, as the fund managers in Malaysia show poor selectivity performance and lack of timing skills. Individual investors, therefore, need to build and diversify their port...

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Main Authors:	Othman, Anwar Hasan Abdullah, Abdul Aziz, Hassanuddeen, Kassim, Salina
Format:	Article
Language:	English English
Published:	Institutional Investor LLC 2017
Subjects:	HG Finance HG179 Personal finance HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation
Online Access:	http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/13/60130_What%20Does%20the%20Relationship%20_article.pdf http://irep.iium.edu.my/60130/14/60130_What%20Does%20the%20Relationship%20among%20Unit%20Trust_scopus.pdf

id	iium-60130
recordtype	eprints
spelling	iium-601302018-11-15T03:30:50Z http://irep.iium.edu.my/60130/ What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry Othman, Anwar Hasan Abdullah Abdul Aziz, Hassanuddeen Kassim, Salina HG Finance HG179 Personal finance HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation In the Malaysian unit trust funds (UTFs) industry, the performance of funds is often below the market portfolio and risk-free returns, as the fund managers in Malaysia show poor selectivity performance and lack of timing skills. Individual investors, therefore, need to build and diversify their portfolio investment beyond the fund managers’ portfolio for further risk mitigation and return enrichment. This study investigates the long- and short-run relationships among all net asset values (NAV) of Islamic UTFs in Malaysia over the period from April 2006 to December 2015, using the Johansen–Juselius cointegration test and vector error correction model (VECM) framework. The overall results show that the NAV of all Islamic funds share a long-run equilibrium relationship in Malaysia. On the other hand, the Engle and Granger causality test found that the Malaysian UTFs industry is an inefficient market and experiences predictable behaviors in the short run. The study, therefore, will contribute to both investors and policymakers. Investors (unit holders) could strategize and diversify their portfolio in the long run based on the degree of relationship among all the Islamic funds to achieve better risk–return trade-offs. In the short run, the result may help them predict the behavior of the funds’ NAV in the near future. For policymakers, the Securities Commission of Malaysia, and the Federation of Malaysian Unit Trust Managers can gain enormous advantages to further improve the UTFs industry by focusing on market price efficiency and a robust regulatory framework of portfolio diversification strategies for each type of fund to be more flexible and to help in eliminating such restrictions on fund managers’ operation diversification for improving UTFs returns to align them with the experience of the developed market. Institutional Investor LLC 2017 Article PeerReviewed application/pdf en http://irep.iium.edu.my/60130/13/60130_What%20Does%20the%20Relationship%20_article.pdf application/pdf en http://irep.iium.edu.my/60130/14/60130_What%20Does%20the%20Relationship%20among%20Unit%20Trust_scopus.pdf Othman, Anwar Hasan Abdullah and Abdul Aziz, Hassanuddeen and Kassim, Salina (2017) What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry. Journal of Wealth Management, 20 (3). pp. 113-128. ISSN 1534-7524 http://jwm.iijournals.com/content/20/3/113.full 10.3905/jwm.2017.20.3.113
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG Finance HG179 Personal finance HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation
spellingShingle	HG Finance HG179 Personal finance HG3368 Islamic Banking and Finance HG4501 Stocks, investment, speculation Othman, Anwar Hasan Abdullah Abdul Aziz, Hassanuddeen Kassim, Salina What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
description	In the Malaysian unit trust funds (UTFs) industry, the performance of funds is often below the market portfolio and risk-free returns, as the fund managers in Malaysia show poor selectivity performance and lack of timing skills. Individual investors, therefore, need to build and diversify their portfolio investment beyond the fund managers’ portfolio for further risk mitigation and return enrichment. This study investigates the long- and short-run relationships among all net asset values (NAV) of Islamic UTFs in Malaysia over the period from April 2006 to December 2015, using the Johansen–Juselius cointegration test and vector error correction model (VECM) framework. The overall results show that the NAV of all Islamic funds share a long-run equilibrium relationship in Malaysia. On the other hand, the Engle and Granger causality test found that the Malaysian UTFs industry is an inefficient market and experiences predictable behaviors in the short run. The study, therefore, will contribute to both investors and policymakers. Investors (unit holders) could strategize and diversify their portfolio in the long run based on the degree of relationship among all the Islamic funds to achieve better risk–return trade-offs. In the short run, the result may help them predict the behavior of the funds’ NAV in the near future. For policymakers, the Securities Commission of Malaysia, and the Federation of Malaysian Unit Trust Managers can gain enormous advantages to further improve the UTFs industry by focusing on market price efficiency and a robust regulatory framework of portfolio diversification strategies for each type of fund to be more flexible and to help in eliminating such restrictions on fund managers’ operation diversification for improving UTFs returns to align them with the experience of the developed market.
format	Article
author	Othman, Anwar Hasan Abdullah Abdul Aziz, Hassanuddeen Kassim, Salina
author_facet	Othman, Anwar Hasan Abdullah Abdul Aziz, Hassanuddeen Kassim, Salina
author_sort	Othman, Anwar Hasan Abdullah
title	What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
title_short	What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
title_full	What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
title_fullStr	What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
title_full_unstemmed	What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry
title_sort	what does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? case of the malaysian islamic unit trust funds industry
publisher	Institutional Investor LLC
publishDate	2017
url	http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/ http://irep.iium.edu.my/60130/13/60130_What%20Does%20the%20Relationship%20_article.pdf http://irep.iium.edu.my/60130/14/60130_What%20Does%20the%20Relationship%20among%20Unit%20Trust_scopus.pdf
first_indexed	2023-09-18T21:25:13Z
last_indexed	2023-09-18T21:25:13Z
_version_	1777412146703892480

What does the relationship among unit trust funds indicate about optimal portfolio investment diversification strategy? Case of the Malaysian Islamic unit trust funds industry

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