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Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds

The study tests the Fama and French three-factor model by using the newly created Islamic equity style indices. Based on a dataset from May 2006 to April 2011, the three-factor model is tested based on returns of Islamic unit trust funds using the Generalized Method of Moments (GMM) methodology. The...

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Main Authors: Shaharuddin, Shahrin Saaid, Lau, Wee Yeap, Ahmad, Rubi
Format: Article
Published: Korea Distribution Science Association (KODISA) 2018
Subjects:
HC Economic History and Conditions
HF Commerce
Online Access:http://eprints.um.edu.my/20721/
https://doi.org/10.13106/jafeb.2018.vol5.no4.21
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spelling my.um.eprints.207212019-03-18T04:49:33Z http://eprints.um.edu.my/20721/ Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds Shaharuddin, Shahrin Saaid Lau, Wee Yeap Ahmad, Rubi HC Economic History and Conditions HF Commerce The study tests the Fama and French three-factor model by using the newly created Islamic equity style indices. Based on a dataset from May 2006 to April 2011, the three-factor model is tested based on returns of Islamic unit trust funds using the Generalized Method of Moments (GMM) methodology. The sample period is also divided between periods before and after the Global Financial Crisis in August 2008 to test for robustness, and the Bai and Perron (2003) multiple structural break test was used to determine the structural break in the series. The analysis shows that the Fama and French model is valid for Islamic unit trust funds before and after the collapse of Lehman Brothers. The result further indicates the reversal of size effect. As for trading strategies, value funds outperform growth funds by annualized 3.13 percent for the full period. During pre-crisis period, value funds perform better than growth funds while in post-crisis, size factor yields better return than other strategies. As policy suggestion, fund managers need to be aware of the reversal of size effect, and they need to ensure a more transparent stock selection process so that investors can make an informed decision in their asset allocation. Korea Distribution Science Association (KODISA) 2018 Article PeerReviewed Shaharuddin, Shahrin Saaid and Lau, Wee Yeap and Ahmad, Rubi (2018) Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds. The Journal of Asian Finance, Economics and Business, 5 (4). pp. 21-34. ISSN 2288-4637 https://doi.org/10.13106/jafeb.2018.vol5.no4.21 doi:10.13106/jafeb.2018.vol5.no4.21
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
topic HC Economic History and Conditions
HF Commerce
spellingShingle HC Economic History and Conditions
HF Commerce
Shaharuddin, Shahrin Saaid
Lau, Wee Yeap
Ahmad, Rubi
Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
description The study tests the Fama and French three-factor model by using the newly created Islamic equity style indices. Based on a dataset from May 2006 to April 2011, the three-factor model is tested based on returns of Islamic unit trust funds using the Generalized Method of Moments (GMM) methodology. The sample period is also divided between periods before and after the Global Financial Crisis in August 2008 to test for robustness, and the Bai and Perron (2003) multiple structural break test was used to determine the structural break in the series. The analysis shows that the Fama and French model is valid for Islamic unit trust funds before and after the collapse of Lehman Brothers. The result further indicates the reversal of size effect. As for trading strategies, value funds outperform growth funds by annualized 3.13 percent for the full period. During pre-crisis period, value funds perform better than growth funds while in post-crisis, size factor yields better return than other strategies. As policy suggestion, fund managers need to be aware of the reversal of size effect, and they need to ensure a more transparent stock selection process so that investors can make an informed decision in their asset allocation.
format Article
author Shaharuddin, Shahrin Saaid
Lau, Wee Yeap
Ahmad, Rubi
author_facet Shaharuddin, Shahrin Saaid
Lau, Wee Yeap
Ahmad, Rubi
author_sort Shaharuddin, Shahrin Saaid
title Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
title_short Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
title_full Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
title_fullStr Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
title_full_unstemmed Is the Fama French Three-Factor Model Relevant? Evidence from Islamic Unit Trust Funds
title_sort is the fama french three-factor model relevant? evidence from islamic unit trust funds
publisher Korea Distribution Science Association (KODISA)
publishDate 2018
url http://eprints.um.edu.my/20721/
https://doi.org/10.13106/jafeb.2018.vol5.no4.21
_version_ 1643691360340934656
score 13.211869

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