Macroeconomic determinants of net asset value of Islamic equity unit trust funds : a case of Malaysia

Abstract

The purpose of this study is to examine the relationship between the NAV of the Islamic equity unit trust funds and macroeconomic variables, namely consumer price index, Industrial production index, three-month treasury bill rate, money supply (M3) and crude oil price as well as the recent global financial crisisin Malaysian financial industry. The analysis based on monthly closing price for a sample of 68 equity unit trust fundsovera period of 6 years, from January 2004 to December 2009, where the years from 2007 to 2009 are consideredas crisis period.Multiple regression and analysis model has been adopted for analyzingthe relationship. The study also compares the performance of Islamic and conventional equity unit trust funds for Malaysian capital market. The major findings of the study show that, CPI, IPI, M3, and crude oil price have significant relationship with the NAV of the Islamic equity unit trust funds in Malaysian capital market. In addition, the current global financial crisis records the highest positive relationship with the NAV of the Islamic unit trust funds. However, the three-month treasury bill rate has no statistically significant relationship with the NAV of the Islamic equity unit trust funds. The results also reveal that Islamic equity unit trust funds achieve higher capital appreciation than the conventional equity unit trust funds. This study facilitates the investors in taking effective investment decisions by estimating the future direction of NAV of the Islamic equity unit trust funds using the expected trend in the macroeconomic variables such as CPI, IPI and Oil Price as well as the effect of the recent global financial crisis. Therefore, the study suggests that macroeconomic policy should be designed keeping in view the response of the Islamic unit trust industry as the efficient market respond to the new information. In addition, the empirical result of this study also will present the investors with new prospective of selecting the type of funds as the part of their portfolio selection, whether Islamic equity fund or conventional equity fund.