The power of religion: Islamic investing in the lab

Banuri, Sheheryar, Murgia, Lucia Milena and Ul Haq, Imtiaz (2024) The power of religion: Islamic investing in the lab. International Review of Financial Analysis, 96 (B). ISSN 1057-5219

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Abstract

Faith-based mutual funds have recently become a growing corner of the mutual fund industry. Morality and ethics are thought to exert an influence on investors' decisions in this segment, though their role in driving such investments is not clear as these funds are also attractive due to their distinct risk-return profile. If non-pecuniary motives are predominant, investors in such funds may be less sensitive to financial performance, resulting in different fund flows patterns relative to conventional funds. This paper fills the gap in the literature, by providing an express linkage between religious preferences and investment in an Islamic fund. Using an incentivized lab experiment, we compare the extent to which investors with religious preferences are likely to accept inferior financial performances to pursue investments aligned with their religious preferences. We show that those with stronger religious preferences are more likely to stick with their investment in Islamic funds when these funds underperform. We do not find that social preferences play a similar role in socially responsible funds, and we find that investors prefer religious investments over socially responsible investments, providing strong evidence that religious investors do not view socially responsible funds as substitutes for Islamic funds.

Item Type:	Article
Additional Information:	Funding Information: The study was funded through grants from the Lahore University of Management Sciences (FIF-2016-17-OSP-303-06). Ethical approval for the study was granted by the Lahore University of Management Sciences IRB (LUMS-IRB/2016-05-06). The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the World Bank Group and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
Uncontrolled Keywords:	experimental finance,investment decision making,islamic investments,mutual funds,responsible investments,finance,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/2000/2003
Faculty \ School:	Faculty of Social Sciences > School of Economics Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Environment, Resources and Conflict Faculty of Social Sciences > Research Groups > Behavioural and Experimental Development Economics Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	LivePure Connector
Date Deposited:	28 Oct 2024 16:30
Last Modified:	16 Dec 2024 01:43
URI:	https://ueaeprints.uea.ac.uk/id/eprint/97238
DOI:	10.1016/j.irfa.2024.103690

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