The significance and performance of Malaysia Islamic real estate investment trusts in mixed-asset portfolio

Abstract

The thesis reports the empirical analysis on the significance and performance of Islamic REITs in Malaysia. Despite the establishment of REIT in Malaysia in 2005, Malaysia has established new form of REIT called Islamic REITs (I-REITs) in 2006 to enhance the development of REIT in Malaysia. It is interesting to study the performance of I-REITs because the issue is important, as I-REITs have established almost a decade and the topic can catch interest to the academic community, investors, policy makers and public. Investors now have much choice on selecting IREIT as their asset class into a mixed-asset portfolio and it is important to select the best asset and made a good decision before doing so. Evaluation on the performance could be relying on the time-series data particularly past value of total return. The motivation of this study is to assess the significance and performance of I-REITs in mixed-asset portfolio in Malaysia. The performance of the I-REITs and other asset classes were assessed by using risk-adjusted performance, portfolio diversification potential, efficient frontier, portfolio optimization and Granger causality test over December 2008 to December 2014. I-REITs was compared with other asset classes in mixed-asset portfolio namely Conventional REITs (C-REITs), shares, Islamic shares, bonds, property, industrial, finance and agriculture. The findings has evidence that I-REITs have superior risk-adjusted performance compared to C-REITs and other asset classes and provide portfolio diversification potential and a significant role as it can reduce the risk and enhance the return in mixed-asset portfolio. Granger causality test was employed to study the relationship on I-REITs return with other asset class. The empirical result has recorded that industrial granger cause on IREITs return but I-REITs does not granger cause industrial return. It is important to note that compare from the previous study, I-REITs performance has improved using longer time series data as the market become more mature from time to time. Based on the empirical findings, I-REITs is significant in the mixed-asset portfolio and can bring improvement in the return gains and risk reduction in the mixed-asset portfolio.