Does Islamic Mutual Fund Bear Higher Risk than Conventional Mutual Funds? An Empirical Analysis from Bangladesh

This study aims to identify whether Islamic mutual funds bear higher risk exposure than conventional mutual funds due to implementing their shariah screening criteria to select assets on the portfolio. For this purpose, monthly closing price data of Islamic and conventional funds operated in Bangladesh are collected from January 2016 to August 2023. A total of 2320 observations of each risk measure (e.g., standard deviation, semi-standard deviation, semi-standard deviation, and beta) are computed using a 12-month rolling window method to compare risk exposure between Islamic and conventional funds using univariable and multivariate analysis. The univariate analysis is conducted by performing an independent samples t-test, which confirms that overall, Islamic funds bear lower risk exposure than conventional funds. In multivariate analysis, the Feasible Generalized Least Square (FGLS) method, a dynamic panel data analysis model, is applied where the effects of macroeconomic variables such as deposit rate, GDP growth rate, exports, imports, broad money, and remittances are controlled. The results of the multivariate analysis also confirm that Islamic mutual fund risk exposure is lower than that of conventional mutual funds. This study will be helpful for practitioners and institutional investors in decision-making.