Foreign Investment in Japan Essay Example | Topics and Well Written Essays - 1000 words

Foreign Investment in Japan - Essay Example This dissimilarity in business culture is a vital key to increasing the stakeholders’ worth and for recovery of investments (Finance and Investment).  This dissimilarity in business culture is a vital key to increasing the stakeholders’ worth and for recovery of investments (Finance and Investment).  Cultural Influence One of the most overbearing impressions that Japanese business owners have is that selling out means that they have failed their employees. Their concern for the welfare of their employees after the acquisition has been made is important and they feel that local companies understand this much more than foreigners do. This issue is not limited to foreign buyers; even Japanese equity funds face great difficulties in acquiring Japanese companies. It takes a lot of hard work to convince potential targets to sell because of their concern for their employees. (ACCI Journal).  This is the basic reason for the low numbers of transactions when compared to th e USA and Europe. This raises the question with most foreign investors as to whether Japanese companies are for sale? Japanese companies can be acquired, but this has usually been an uphill task because of cultural barriers. Now the feeling is that Japan needs foreign investment for sustenance (ACCI Journal).  

Researching Politics and International Relations Essay

Researching Politics and International Relations - Essay Example 11) The idea is that politics is abstract in its character, with its ideologies and values, and could not be perceived by the senses. The positivist school identified this as the most important criterion in order for a field to be considered factual and, hence, measured, examined and analyzed scientifically. In addition, along with the abstract concepts such as aesthetics, political theory was relegated to the mere declarations of conflicting preferences and opinions. This perspective, however, changed with the emergence of behaviorism. Here, political science under the wider coverage of social science became scientific because of the systematic introduction of quantitative methods of analysis as the supreme methods of inquiry as well as displacement of the normative frameworks of political theorists by the development of the empirical theory. (Held, p. 13) One of the most important arguments behind this school is the Aristotelian thought that man is a social being and human activity is carried on in a social and political setting. Political science, hence, studies, â€Å"inter alia, the chief theatre in which good men must act out their lives; and in determining the design of the theatre it will of necessity take an interest in, and sets limit upon, the type of drama which may be played out there.† (Aristotle et al. p. xvii) In this regard, Held also cited the arguments of figures like Thomas Kuhn, Imre Lakatos and Mary Hesse who stressed that science, as a form of human activity itself, is inescapably an interpretative endeavor, involving problems of meaning, communication and translations – variables that political science also covers. (p. 13) Finally, one turns to Lyotard’s (1984) criteria in order for politics to be considered as scientific. For him, science is a subset of learning and that it is composed of denotative statements and imposes two supplementary conditions on their

Human Resources Management Essay Example | Topics and Well Written Essays - 1000 words

Human Resources Management - Essay Example He planned to hire an office administrator, two route drivers, and a warehouse worker. Beginning in the third quarter of 2009, he toyed with the idea of hiring an operations manager who could handle some of the day-to-day tasks that were starting to drain him professionally and personally. â€Å"There was no one to take work off Mark’s plate,† said Dan Price, who is founder of  Gravity Payments, a credit card processor, and has served as an informal adviser to Mr. Sims through their chapter of  Entrepreneurs’ Organization. â€Å"A first senior hire is daunting for an entrepreneur,† Mr. Price said. In fact, the prospect of carving out time to make hires was daunting to Mr. Sims. He recalled spending three days sorting through resumes when he could have been out getting business. With the unemployment rate high, the number of job applicants has surged, making screening even more time-consuming. â€Å"I get resumes for driver positions from applicants wh o don’t even have a license,† he said. In addition, Mr. Sims conceded that he did not have the best record of accomplishment when it came to hiring. Last year, for example, he brought on employees who seemed â€Å"fine† but did not last. A driver he found on  Craigslist  wrecked a new vehicle. ... Sims considered running ads and browsing resumes posted on state employment agency Web sites. At first glance, this seemed the least expensive way to go. However, after factoring in the time for culling resumes, Mr. Sims was less convinced that this was the best way to find candidates, particularly a strong No. 2. His other option was to hire a recruiter, at least to find the operations manager. However, Mr. Sims was not enthusiastic about spending that kind of money — typically, 20 to 30 percent of the hire’s six-figure salary. He had worked previously with a recruiter who had charged much less ($1,500 per placement), but offered little value. THE DECISION  In consultation with Mr. Price, who had taken his own company to 53 employees, from 10, in the previous four years, Mr. Sims decided to use a recruiter to find his operations manager, beginning the process last November. The agency began by interviewing Mr. Sims, who said he was surprised to realize during the con versation just how much he disliked operations. Once the agency understood his needs, it sent him the resumes of 12 candidates. Of those, Mr. Sims selected six and spent a day interviewing them back-to-back. He then ranked them and scheduled second interviews with the top two — a former chief financial officer and a former tech entrepreneur who had built a business from three to 35 employees before selling it. Mr. Sims, Mr. Price and a human resources employee from Gravity Payments conducted second interviews at the agency. The process took half a day. Mr. Sims interviewed one candidate, while Mr. Price and his colleague interviewed the other, and then

Comparison of Two Methods of Energy Production Research Paper

Comparison of Two Methods of Energy Production - Research Paper Example The conventional methods of the power generation requires fossil fuel as the sources of the power, however, alternate resources of energy generate energy by the utilization of the sustainable resources of energy, like solar, wind, geothermal, hydrodynamic, etc. As, the population of the world is growing, the hunger of the power is growing. During the past few decades, the hunger for the power reached to a higher level (Manwell, McGowan & Rogers, 2009). The fuel prices are also rising due to the increase in the demand and shortening of the resources. Thus, the conventional power generation methods are now seem to be costly as compared to the alternate power generation methods. On the other hand, alternate methods of the power generation are not only considered as cost efficient but also environmentally responsible. In this paper, the conventional power generation methods and wind power generation method are compared according to the economic stability, environmental stability and the most appropriate future power generation methods. Coal is the compound that is mostly utilized for the generation of electrical energy. Coal is also the dirtiest type of fossil fuels due to the production of solid as well aerosol wastes. Natural gas is the cleanest form of the fossil fuels (Manwell, McGowan & Rogers, 2009). ... to change the water into super saturated steam that may have a temperature as high as 600 degrees on the Celsius scale (Manwell, McGowan & Rogers, 2009). High pressure super saturated steam is then utilized in the steam turbine engine. The high pressure super saturated steam influences the blades of the turbine to react in response to the high pressure steam. Blades are attached to the rotor that converts the steam energy into rotational motion. The rotational motion is then shifted to the electrical generator that converts the mechanical energy into electrical energy. Two major types of alternating current generators are utilizing to convert the mechanical energy into electrical energy; permanent magnet generators and induction generators. Both are technologies are utilized in the power generation industry depending upon the amount of power generation. Wind energy conversion system is a simple conversion method. Wind strikes with blades of the wind turbine, the turbine blades react with the influence of the wind and produces a rotation in the rotor of the turbine. The rotor rotates the armature of the generator that induces electromotive forces in the corresponding coils and thus generates the electrical current. The blades of the wind turbine are such designed to take maximum advantage form the wind and a better control and gear system ensure the higher performance from the wind turbine. Wind power generation method is becoming more popular due to the higher efficiency and greater reliability as compared to the other alternate resources. Horizontal axis wind turbines are employed by many countries to generate electrical energy (Knopper & Ollson, 2011). However, vertical axis wind turbines are gaining popularity dye to simpler design and better performance

Social Learning Theory Essay Example for Free

Social Learning Theory Essay Key Figures: Montgomery, Rotter and Bandura Key Concepts: Individuals learn through observing others’ behavior, attitudes, and effects of those behaviors. Explanation of Disorder Personality: overly aggressive individuals (i.e. serial killers) Validity: When individuals observe others engaging in certain behaviors, it does not necessarily mean that they are learning that behavior. People need a good reason to want to learn behaviors through observation. Comprehensiveness: Social learning theory derived from Montgomery’s proposal that social learning occurred in 4 stages: imitation, close contact, understanding of concepts and role model behavior Applicability: This theory is used in television and movie rating systems that in the United States. It informs parents on what their children are watching and the type of content in this medium. The rating system is based on age suitable material to assist parents in deciding if certain content is appropriate for children. It can also be applied through guided class participation seen in schools all across the United States as well as all over the world. Cultural Utility: Guided participation Trait Theory: Key Figures: Allport and Cattell Key Concepts of Personality Formation: The trait theory implies that people personalities are composed of wide temperaments. It focuses on the differences between individuals. Explanation of Disorder Personality: Traits alone do not necessarily determine psychopathologies such as antisocial behavior or bipolar disorder. There are other factors to consider. Validity: If a child is born with a trait for a certain personality characteristic such as shyness it does not necessarily mean they will be shy adults. It would also depend on things such as parental interactions, cultural encouragement and cognitive awareness. Comprehensiveness: In 1936 Allport categorized personality traits into three levels: 1) Cardinal traits, 2) Central Traits and 3) Secondary Traits Applicability: Cattell condensed the number of personality traits from Allports preliminary list of over four thousand down to one hundred seventy one. He then rated a large number of individuals for these one hundred seventy one different traits. Then he started using a factor analysis which is a statistical technique and ultimately reduced his list to 16. Cattell believed that these traits are the basis of all human’s personality. This is one of the most commonly used personality assessments. Cultural Utility: In certain cultures men and women are encouraged to express certain personality traits over others. For example in some cultures men are discouraged from showing vulnerability and encouraged to show more aggressiveness. Women are generally less encouraged to be aggressive.

Environmental assessment Essay Example for Free

Environmental assessment Essay This paper has been written to analyze in-depth, the pollution, covering air, water, chemicals, and other such related issues in the United States. Further, I would also be developing an environmental health teaching plan to address one of these issues. Environmental issues are becoming very prevalent in today’s world. The question is why the environment and its concerns are becoming more prevalent, important and famous now. For this, we will need to look at the history. For decades we have neglected this seemingly dangerous issue due to which it has been going unnoticed. The reason we never before paid heed to this concern or issue is because this issue’s repercussions were not evident in the previous years. As no such notice regarding this issue was taken into consideration, it could not even be rectified. (Abel McConnell, 2007). However, with the advent of global warming and other factors such as acid rain, prevalence of carbon dioxide and the ever increasing penetration of green house gases has put many lives at stake making many people fear that this world will not continue to exist or survive for more than 10 years from now on that means that by 2018 this world will have used most of the resources and this is basically due to the wastages of resources available to us. The basic thing that we have to consider here is to think hard about the issue as to how we can prevent our precious resources from depletion, disappearance and from vanishing. To answer this question we can simply say that we should use our resources optimally. (Kemp, 2007). It is believed that the next war that would be held would be for the sole purpose of resources. The 9/11 attacks on the World Trade Centre highlights the hidden objective of the resources. Although this act would be illegal and an immoral thing or practice, therefore many countries other than the one going for the war would object to this act for spoiling the world peace. U. S is a super power of the world and it is always trying to get hold of the resources. They are doing this by capturing resources, snatching them and raiding the countries that have abundant of these resources such as O. P. E. C countries and countries with no or minimal problems of the water shortage or the countries thave abundant of resources like the crude oil, natural coal and the natural gas. (Harris 2004). The reason why some countries have been the target of the United States is because although these countries might have some kinds of resources, however they do not have any resources that can be used to combat the threat or the attack coming from the super power such as the US and countries that are the allies of the U. S. such as European Union that also includes Turkey. Furthermore, these countries have a very weak defence and military, but the most important two factors that are responsible for their vulnerability are mentioned below. †¢ Lack of Decisive and Prowess Leadership. †¢ Ignorance to the current affairs and the intelligence. This is one of the major problems that might create huge problems for the countries US has their eyes on. With all the afore mentioned details to the problem, now let us go deeper in to the affects of the ignorance this problem environment exploitation that is also supported by the fact that he next war expected to take place is on the resources. The mere resources which were once used with out any fear of them being depleted once are now being depleted all because of the lack of the knowledge and the lack of the far sightedness of the problem. Now this problem has become very prominent and inevitable. The depletion of resources is not a small problem but it is vice versa. It is a very big problem that can greatly affect our future generations and if this problem goes unsolved today then our generations will have no future or to put it more realistically our future generation is going to be at the mercy of an unsafe future with lots of pollutants in the air. Therefore, if this problem goes unrectified then its repercussions can be innumerable, our future generation is at stake and now is definitely the time to act upon. (Horner, 2007). The United States of America, in past many years have taken initiative to contribute towards environment uplift and betterment of the environment. Environmental hazards do not have any boundary. The boundaries separating the countries subordinate to environmental impacts. Global warming, green house gases, carbon dioxide, carbon monoxide penetration know no boundary and their impact is much due to which there is a dire need now is to prevent exposure to these hazards. However, the US cannot alone can not take any initiative to combat this seemingly deadly hazard and so it requires input and the cumulative effort to prevent this penetration in to our lives and body but as the US is one of the major super powers of the world, it must take the initiative. Furthermore, US is well equipped with resources and can lead the world to save the environment. (Houghton, 2004). US has repeatedly been warned of the repercussions of the gases from chimneys that their factories and companies are producing and how their industrial wastage is discarded. Furthermore, US have broken many protocols and pacts on this regard and continue to exploit environment. US can also be given the name of one of the world‘s biggest pollutants. The environments can also affect international marketing decisions and the planning system of the countries. This is because two different states have two different governments and thus having different polices and laws. Therefore, the marketing decisions that are taken in a country are different from each other according to the social, economic and political environment that exists in the country. (Kitchen Schultz, 2000). Reference Abel,D. C. McConnell,R. L. (2007). Environmental Issues: An Introduction to Sustainability. 3rd Edn. Prentice Hall, Paperback. Horner,C. C. (2007). The Politically Incorrect Guide to Global Warming and Environmentalism. Regnery Publishing, Inc. , Paperback. Kemp,D. D. (2007). Exploring Environmental Issues (Kindle Edition). 1st Edn. Taylor Francis. Kitchen,P. Schultz,D. (2000). Communicating Globally: An Integrated Marketing Approach. London, Macmillan Business. Scorecard. (n. d. ). More Facts on Pollution. January 3rd, 2009. Retrieved from: http://www. scorecard. org/

Malaysian Conventional and Islamic Equity Mutual Fund

Malaysian Conventional and Islamic Equity Mutual Fund An Analysis Of Companies Portfolio Performance Using Sharpe Ratio: A Study On The Differences Of Performance Between Malaysian Conventional And Islamic Equity Mutual Fund In 2007 1.0 Introduction 1.0.1 Chapter Description In this chapter, explaining the background of the study, problem statement, objectives of the study, hypotheses, significance of this study, as well as the scope and limitations during the process of completing this study. 1.0.2 Background of the Study Portfolio evaluation is on the time before 1960. Investors evaluated portfolio performance almost entirely on the basis of the rate of return. They were aware of the concept of risk but did not know how to quantify or measure it, so they could consider it explicitly. Developments in portfolio theory in the early 1960s showed investors on how to quantify and measure risk in terms of the variability of returns. Still, because no single measure combined both return and risk, the two factors had to be considered separately as researchers such as Friend, Blume, and Crockett (1970). Specifically, the investigators grouped portfolios into similar risk classes based on a measure of risk (such as the variance of return) and compared the rates of return for alternative portfolios directly within these risk classes. Before 1960, investors evaluated portfolio performance almost entirely on the rate of return, although they knew that risk was a very important variable in determining investment success. The reason for omitting risk was the lack of knowledge on how to measure and quantify it. After the development of portfolio theory in early 60s, and CAPM in subsequent years, risk, measured as either by standard deviation or beta, was included in evaluation process. However, since there was not a single measure combining return and risk, two factors were to be considered separately that were researchers grouped portfolios into similar risk classes and compared rates of return of portfolios in the same risk class. There are many kinds of measurement such as Jensen, Treynor and also Sharpe to evaluate the companys portfolio performance. Jensens alpha has been a popular performance measure because it is a return concept. Related to Dr. William F. Sharpes contribution to style analysis of investment performance, the Sharpes alpha is related to the Jensens alpha in the sense that both measures excess returns. They differ, however, in the selection and construction of benchmarks. Sharpe (1966) developed a composite index which was very similar to the Treynor measure, the only difference was that it was being used as standard deviation, instead of beta. To measure the portfolio risk, the researcher needs the average rate of return for Portfolio during a specified time period, the average rate of return on risk-free rate during the same period, Sharpe performance index and the standard deviation of the rate of return for Portfolio during the time period. Sharpe preferred to compare portfolios to the capital market line (CML) rather than the security market line (SML). Sharpe index, therefore, evaluated funds performance based on both rate of return and diversification (Sharpe 1967). For a completely diversified portfolio Treynor and Sharpe indices would give identical rankings. Although the mutual fund industry in Malaysia started as far back as 1959 with the establishment of the Malayan Unit Trust Ltd, the development of the industry did not take-off until the 1980s with the launching of the Amanah Saham Nasional (ASN). In 2004, the Commission approved 17 new Syariah-based unit trust funds, bringing the total number of such funds to 71 or 24.4% of the total 291 approved funds in the industry as at the end of 2004 (2003: 55 funds or 24.3% of the total industry). Of the 71 Syariah-based unit trust funds, 14 were balanced funds, 14 were bond funds, 39 were equity funds, 2 two were fixed income funds and two were money market funds. The number of units in circulation for Syariah-based unit trust funds also increased from 8.59 billion units as at the end of 2003 to 13.16 billion units in 2004. The number of accounts registered an increase of 23.4% or 80,848 accounts, with a total of 427,000 accounts in 2004. One conventional fund made changes to its investment objectives and operations which enabled it to comply with the requirements of Syariah-based unit trust funds. In terms of value, the NAV of Syariah-based unit trust funds grew to RM6.76 billion representing 7.7% of the industry, an increase of 0.9% from the previous year. Over a 10-year period (1995-2004), the NAV of Syariah-based unit trust funds grew at a compounded annual growth rate (CAGR) of 26.18% while the overall industry CAGR was 7.89%. The recognition of the increasing dominance and importance of unit trusts as an investment instrument has spurred researchers to devise appropriate techniques to assess portfolio performance. The earlier works by Sharpe (1966), Treynor (1965) and Jensen (1968) represented significant contributions to the evaluation of portfolio performance. Therefore, the primary aim of this paper is to present new evidences for the analysis of companies portfolio performance using Sharpe ratio by studying the differences the performance between Malaysian conventional and Islamic Equity Mutual Fund in 2007. 1.0.3 Overview of Conventional and Islamic Mutual Fund Mutual fund or better known as unit trust in Malaysia is an investment vehicle created by asset management companies specializing in pooling savings from both retail and institutional investors. Individual investors seeking liquidity, portfolio diversification and investment expertise are increasingly choosing unit trust funds as their investment vehicle. However, these investors do differ in their preferences based on their risk threshold, liquidity needs and their needs to comply with religious requirement. In the Malaysian context, the performance of mutual funds or more popularly known as unit trust funds as reported by Shamsher and Annuar (1995), Tan (1995), Leong and Aw (1997), Annuar et al,. (1997) and Low and Noor A. Ghazali (2005) concluded that on average, funds were unable to beat the market. The number of unit trust has grown dramatically in recent years. Unit trusts are now the preferred way for individual investors and many institutions to participate in the capital markets, and their popularity has increased demand for evaluations of fund performance. Muslims are not allowed to invest in standard mutual funds since their religion prohibits them from investing in certain equities, like those of banks or companies that deal in pork, alcohol, pornography and certain entertainment related products. An Islamic mutual fund is similar to a â€Å"conventional† mutual fund in many ways; however, unlike its â€Å"conventional† counterpart, an Islamic mutual fund must conform to the Sharia (Islamic Law) investment precepts. The Sharia encourages the use of profit sharing and partnership schemes, and forbids riba (interest), maysir (gambling and pure games of chance), and gharar (selling something that is not owned or that cannot be described in accurate detail; i.e., in terms of type, size and amount) (El-Gamal 2000). The Sharia guidelines and principles govern several aspects of an Islamic mutual fund, including its asset allocation (portfolio screening), investment and trading practices, and income distribution (purification). When selecting investments for their portfolio (asset allocation), conventional mutual funds can freely choose between debt-bearing investments and profit-bearing investment, and invest across the spectrum of all available industries. An Islamic mutual fund, however, must set up screens in order to select those companies that meet its qualitative and quantitative criteria set by Sharia guidelines. 1.1 Problem Statement At some levels, people are always interested in evaluating the performance of their investments. Having to spend the time and incurred the expense to design an asset allocation strategy and select the specific set of securities to form their portfolios, investors whether they are individuals, corporations, or financial institutions. It must be periodically determined whether this effort is worthwhile. Investors in managing their own portfolios should evaluate their performance, as should those who pay one or several professional money managers to make these decisions for them. It is imperative to determine the realized investment performance which justifies the additional costs of engaging professional management. Comparing a portfolios historical returns to those produced by other managers or indexes can be instructive; such comparisons do not produce a complete picture of the portfolios performance. Indeed, the central tenet of the modern approach to performance measurement is that it is impossible to make a thorough evaluation of an investment without explicitly control the risk of the portfolio. Given the complexity and importance of the issues involved, it is not a surprise to learn that there is not a single universally accepted procedure for risk-adjusting portfolio returns. Nevertheless, there are several techniques that are commonly employed. Some previous studies found results that are inconsistent with Chuas findings. These studies include Ewe (1994), Shamsher and Annuar (1995), and Tan (1995). Shamsher and Annuar (1995), focused their study on the performance of 54 unit trusts covering the period of late 80s to early 90s. They found out that the returns on investment in unit trust were well below the risk free and market returns. Furthermore, the results indicated that not only the degree of portfolios diversification was below expectation but the actual returns and risk characteristics of funds were also inconsistent with their stated objectives. Tan (1995) analyzed performance of 12 unit trusts over a 10-year period, 1984-1993. He concluded that unit trusts in general perform worse than the market portfolio. Consistent with Chuas findings, Tan also concluded that government sponsored funds performed better than private funds. As we can see, there are three portfolio performance evaluation techniques that comprise the basic ‘toolkit for measuring risk-adjusted performance. Although some redundancy exists among these measures, each of them provides unique perspectives, so that best viewed as complementary measures. In particular, examining the controversy surrounding the selection of the proper benchmark to use in the risk-adjustment process and discussing why these benchmark problems become larger when beginning to invest globally. From here, how to evaluate the performance of the investments in order to reduce the risk taken? What measurement can contribute to evaluating a good investment? Therefore, it is interesting to analyze the companies portfolio performance by studying on the differences in the performance between conventional and Islamic equity mutual fund in Malaysia by using Sharpe ratio. 1.2 Objectives of Research The general purpose of this study is to analyze the companies portfolio performance using Sharpe ratio by studying on the differences in the performance between conventional and Islamic equity mutual fund in Malaysia. A careful review on those questions has led to the development of the following specific research objectives which are: i. To measure and rank both relative quantitative performances of mutual fund (conventional/Islamic) on the basis of their return, total risk, coefficient of variation and Sharpe ratio. The term performance contains both the return and the risk undertaken by these mutual funds. ii. To investigate whether both mutual funds (conventional/Islamic) are earning higher returns than the benchmark returns (or market Portfolio/Index returns) in terms of risk. iii. To determine the relationship between dependent variable and independent variable. 1.3 Scope of Study The study is on the analysis of the companies portfolio performance in determining the measure of average daily return, total risk (standard deviation), coefficient of variation and Sharpe ratio. Moreover, to observe the differences in terms of performance between conventional and Islamic mutual fund in the context of Malaysian capital market by comparing them to the stock market index or Kuala Lumpur Composite Index (KLCI) benchmark. The scopes of the study are stated as follow:  § The relationship between two variables: the return on equity mutual fund as the dependent variable whereas the return on stock market index (KLCI) as the independent variable for conventional and Islamic fund.  § The period of study will cover one (1) year starting from January 2007 to December 2007 using the daily basis collected from The Star and New Straits Times newspapers and also from the internet.  § This research will also focus on the conventional and Islamic Equity Mutual Fund companies available in Malaysia. 1.4 Theoretical Framework The theoretical framework shows the relationship between the independent variables and dependent variable. The independent variable is the return on KLCI while the dependent variable is the return of Equity Mutual fund companies in Malaysia. Schematic diagram for the theoretical framework in this study is as follows: Market Index Equity Fund Market Index Islamic Equity Fund Independent Variable Dependent Variable 1.5 Hypotheses According to Uma Sekaran (2003), a hypothesis can be defined as a logically conjectured relationship between two or more variables expressed in the form of testable statement. Hypothesis can be divided into two categories which are Ho which is a Null Hypothesis and Ha which is an Alternate Hypothesis. The term â€Å"null† can be thought of as meaning â€Å"no change† or â€Å"no difference†. The second hypothesis is called alternative hypothesis. It is summary of the case if the null hypothesis is not true. It is stated that Ha, the alternative hypothesis is a statement of a view that has been prepared to be accepted if Ho is rejected. The hypotheses of this study are: Hypothesis 1: Ho: There is no relationship between the return on KLCI and the return on Conventional equity mutual fund. Ha: There is a relationship between the return on KLCI and the return on Conventional equity mutual fund. Hypothesis 2: Ho: There is no relationship between the return on KLCI and the return on Islamic equity mutual fund. Ha: There is a relationship between the return on KLCI and the return on Islamic equity mutual fund. 1.6 Limitations of the Study Data Collection and Cost Limitation The major source of data gained is from the secondary sources. The data is only available at certain places and it requires cost to obtain the data. Besides, it also requires costs in the process of printing, photocopying, data services and transportations to obtain the information. The information about the topic studied is also difficult to search in the library because of the limited information. As a result, it causes problems to the researcher to gather and collect the information. The information and data related to the study is rather difficult to obtain. Thus, the accuracy of the study depends on the accuracy of the data available and may not perfectly precise. In addition, data is also limited since it relies on the secondary sources alone. Lack of Experience and Expertise Since this research is the first research experience for the researcher, undoubtedly there are still lots of things to improve. The lacks of experience especially in data collection and time management have been the limitations to the researcher. Moreover, the researcher has limited knowledge on the topic and needs more understanding on the topic studied. Time Constraint Time is very limited for the researcher to complete the research. The researcher has to be very smart in scheduling the time to make sure the research is completed in time. Thus, time constraint has been identified as one of the limitations for the researcher. 1.7 Significance of the Study This research analyzes on the companies portfolio performance using Sharpe ratio by studying on the differences in the performance between conventional and Islamic Equity Mutual Fund in Malaysia. Therefore this study will provide some information that can be useful because the data and findings from this research will help other researchers to produce better result in their research. This research is also significant to: To Researcher As a finance student, issues in measuring portfolio performance are so much important and crucial. By studying about measurement of portfolio performance in depth, a better understanding and knowledge is gained. This research has given the researcher the opportunity to get the experience in practice as well as in theories. To other researcher This study also can be a useful reference to other researchers who are keen to carry on the study regarding the performance of mutual fund in Malaysia. There are several fruitful areas in this study that can be further examined by other researchers. Further study will give an opportunity to other researchers to expand their view and knowledge. To do so, they need to refer to numerous literatures and hopefully, this research can come in handy for them. To Finance Students This research will be very useful for finance students in having more knowledge about the companys portfolio performance and the differences in the performance between conventional and Islamic Equity Mutual fund in Malaysia. They can use this research as a guide and as references in their studies in portfolio management and mutual fund in Malaysia. To Businesses This research is very important to businesses in realizing the effects of portfolio management on their performance. This is important so that they will have clear direction in deciding their investment. To Investors This study plays an important role in decision making since it gives the investors a prior knowledge of which Equity Mutual Fund companies is the best to invest and whether those companies provide high returns on investment. Moreover, revealing the specific volatility patterns in returns might also benefit investors in risk management and portfolio optimization. This research is also important to investors so that they can have a clearer picture of their investment choices. For investors the study can help them to know the risk and return of their investment transaction. 1.8 Definition of Terms Portfolio A collection of investments are all owned by the same individual or organization. These investments often include stocks, which are investments in individual businesses; bonds, which are investments in debt that are designed to earn interest; and mutual funds, which are essentially pools of money from many investors that are invested by professionals or according to indices. Sharpe Ratio A risk-adjusted measure developed by William F. Sharpe, calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the funds historical risk-adjusted performance. Mutual Fund (Unit Trust) A form of collective investment constituted under a trust deed or a pooled investment plan where the capital contributions of investors are combined into a legally formed trust fund. Equity fund Equity fund or stock fund is a fund that invests in Equities more commonly known as stocks. Such funds are typically held either in stock or cash, as opposed to bonds, notes or other securities. Return Based on Investopedia definition, return can be defined as the gain or lossof an investment over a specified period, expressed asa percentage increase over the initial investment cost. Gains on investments are considered to beany income received from the security, plus realized capital gains. Risk The quantifiable likelihood of loss or less-than-expected returns Risk-adjusted return A measure of how much an investment returned in relation to the amount of risk it took on. Often used to compare a high-risk, potentially high-return investment with a low-risk, lower-return investment. Benchmark A standard, used for comparison. For example, the Nasdaq may be used as a benchmark against which the performance of a technology stock is compared. Regression Analysis A statistical technique used to find relationships between variables for the purpose of predicting future values. Coefficient of Determination A measure of the correlation between the dependent and independent variables in a regression analysis. R-squared A measurement of how closely a portfolios performance correlates with the performance of a benchmark index, such as the SP 500, and thus a measurement of what portion of its performance can be explained by the performance of the overall market or index. Values for r-squared range from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation. Kuala Lumpur Composite Index (KLCI) The Kuala Lumpur Composite Index (KLCI) is a stock market index generally accepted as the local stock market barometer. KLCI was introduced in 1986 to public the need for a stock market index which would serve as an accurate performance indicator of the Malaysian stock market as well as the economy. It is used to be the main index, and is now one of the three primary indices for the Malaysian stock market which the other two are FMB30 and FMBEMAS, Bursa Malaysia. It contains 100 companies from the Main Board with approximately 500 to 650 listed companies in the Main Board which comprise of multi-sectors companies across the year 2000 to 2006 and is a capitalization-weighted index. 2.0 Literature Review 2.1 Chapter Description Literature review is the documentation of a comprehensive review of the published and unpublished work from the secondary sources of data in the areas of specific interest to the researcher. The reason of the literature review is to ensure that no important variable that has in the past been founded repeatedly to have an impact on the problem is ignored. (Uma Sekaran, 2005 page 63). 2.2 Literature Review of Evaluated Portfolio Performance Craig W. French (2003) discussed on what is involved in evaluating portfolio performance, including the need to adjust for differential risk and differential time periods, the need for a benchmark, and constraints on portfolio managers. It also considered the difference between the portfolios performance and the managers performance. For measurement this paper used well-known risk-adjusted (composite) measures of Sharpe portfolio performance. Investors who had all (or substantially all) of their assets in a portfolio of securities should rely more on the Sharpe measure because total risk is important. Joel Owen and Ramon Rabinovitch (1998), for the last four decades, numerous authors have been suggesting methods to evaluate portfolio performance. Sharpe (1966) proposed performance measures which had produced a score for every portfolio being evaluated. These scores were used to compare the performance of any two portfolios or rank the performance of all portfolios in a given set. The earlier works by Sharpe (1966), Treynor (1965) and Jensen (1968) represented significant contributions to the evaluation of portfolio performance. 2.3 Literature Review of Sharpe Ratio Francisco Peà ±aranda (2007) in her paper commented on developments beyond mean-variance preferences to some alternatives to the Sharpe ratio. The main goal of those measures was to give a similar ranking to Sharpe ratios when returns were symmetrically distributed and showed a preference for skewness when they were not. Moreover, performance measures could be used to guide asset allocation since they can be used as the criterion to maximize with portfolio. Raphie Hayat (2006), the attractiveness of the Sharpe Ratio came from its intuitiveness and simplicity. The Sharpe Ratio are simple because it could rank funds on the base of a single and intuitive since it only rewarded funds with a higher ratio if their returns were higher with the same level of risk or if the risk was lowered while keeping the same level of return. Zhidong Bai, Keyan Wang, and Wing-Keung Wong (2006) stated that the asset performance evaluation was one of the most important areas in investment analysis. In order to compare the performance among assets, several statistics had been developed and among them, the Sharpe-ratio statistic was the most prevalent. However, the major limitation of the Sharpe-ratio statistic was that its distribution is only valid asymptotically, but not valid for small samples. Nevertheless, it was important in finance to test the performance among assets for small samples. Tzu-Wei Kuo and Cesario Mateus (2006), the Sharpe ratio was well known risk-adjusted performance measures and easily understood by an individual investor. Thus, investors could evaluate the exchange-traded funds (ETFs) performance, based on the Sharpe ratio. However, the Sharpe ratio relied on the assumption that returns were normally distributed having these measures difficulty in evaluating the performance with skewed return distributions. Martin Eling and Frank Schuhmacher said that the classic Sharpe ratio was adequate in evaluating investment funds when the returns of those funds were normally distributed and the investor intended to place all his risky assets into just one investment fund. Because hedge fund returns differed significantly from a normal distribution, other performance measures had been proposed and encouraged in both academic and practice-oriented literature. The Sharpe ratio measured the performance of an investment fund by considering the relationship between the risk premium and the standard deviation of the returns generated by a fund. The Sharpe ratio were an adequate performance measure if the returns of the investment funds were normally distributed and the investor wished to place all his risky assets in just one investment fund. Andreas G Merikas, Anna A Merikas and Ioannis Sorros (2005) examined the exact relationship between the Sharpe ratio and the information ratio. Sharpe in 1994 asserted that the information ratio was a generalized Sharpe ratio. Sharpe ratios had been estimated for each fund in each category, and an average ratio for each category. The Sharpe ratio would generally be positive since excess returns of funds over the risk free rate would be positive, unlike excess returns of funds over the market, which could be negative, as the return of the risk free bond was smaller but at the same time less volatile than the return of the market. Cheryl J. Frohlich, Anita Pennathur and Oliver Schnusenberg in their research, Sharpe reward-to-variability ratio was used if total variability was thought to be the appropriate measure of risk, a stocks (portfolios) risk-adjusted returns could be computed using the Sharpe Index. The Sharpe and Treynor Index eliminated the problem of only considering return as a measure of performance. However, neither ratio was independent of the time period over which it is measured. This means that the ratio can change from one period to another with different results. Moreover, both ratios also ignored the correlation of a fund with other assets, liabilities, or previous realizations of its own return. Mario Onorato (2004), the Sharpe Ratio of any investment was defined as its excess return, it is return in excess of a benchmark return divided by the standard deviation of excess return. The benchmark represents a risk free investment alternative. Moreover, although the Sharpe ratio has become part of the modern financial analysis, its applications typically did not account for the fact that it was an estimated quantity, subject to estimation errors that would be substantial in some cases. The statistical properties of Sharpe ratios depended intimately on the statistical properties of the return series on which they are based. This suggests that a more sophisticated approach to interpreting Sharpe ratios is called for, one that incorporates information about the investment style that generates the returns and the market environment in which those returns are generated. Wei Zhen (2004), in his paper said that the Sharpe (1966) and Treynor (1965) performance measures were widely accepted in both academia and industry to assess the Risk-adjusted value of a particular portfolio. It could be shown, after some mathematical treatment, that the Sharpe performance measure was useful when the portfolio of interest represented all of the investors investment, while Treynors measure was preferred when the portfolio under discussion was only a portion of the whole investment package. Robert McCauley and Guorong Jiang (2004), through the Sharpe ratio it compared the returns of portfolios in relation to their risk by dividing their returns in excess of the riskless rate of return by the volatility of their returns. A portfolio with a higher Sharpe ratio was preferred in that it offered a higher return per unit of risk, as measured by return volatility. William Goetzmann, Jonathan Ingersoll, Matthew Spiegel and Ivo Welch (2002), the Sharpe ratio is one of the most common measures of portfolio performance. It was used as a tool for evaluating and predicting the performance of mutual fund managers. Since then the Sharpe ratio, and its close analogues the Information ratio, the squared Sharpe ratio and M-squared, have become widely used in practice to rank investment managers and to evaluate the attractiveness of investment strategies in general. The appeal of the Sharpe measure was clear. It was an affine transformation of a simple t-test for equality in means of two variables, the first variable being the managers time series of returns and the second being a benchmark. The Sharpe ratio was also ubiquitous in academic research as a metric for bounding asset prices. Andrew Worthington and Helen Higgs (2002), the Sharpe ratio (also known as the reward-to-volatility ratio) indicated the excess return per unit of risk and was calculated by dividing the return in excess of the risk-free rate by the standard deviation of returns. In the current context, the Sharpe ratio was the most appropriate performance measure for an investor whose portfolio was composed wholly of a given artists work. Verena Kugi (1999), the Sharpe ratio measured the change in the portfolios return with respect to a one unit change in the portfolios risk. The higher this Reward-to-Variability-Ratio the more attractive was the evaluated portfolio because the investor received more compensation for the same increase in risk. Graphically, the Sharpe ratio was equal to the slope of a straight line connecting the position of the evaluated portfolio, for example a fund, with the risk-free rate. To determine the quality of performance, the Sharpe index of the evaluated portfolio was compared to the Sharpe index of the market or benchmark portfolio. The portfolios Sharpe index being higher than the markets Sharpe index indicated that the portfolio manager had outperformed the market. Respectively, a lower Sharpe ratio was a sign of underperformance. Any portfolio that was positioned on the capital market line had a Sharpe ratio equal to that of the market and was therefore characterized by neutral perform ance. Youguo Liang and Willard McIntosh (1998), the Sharpes alpha captured the excess return of Malaysian Conventional and Islamic Equity Mutual Fund Malaysian Conventional and Islamic Equity Mutual Fund An Analysis Of Companies Portfolio Performance Using Sharpe Ratio: A Study On The Differences Of Performance Between Malaysian Conventional And Islamic Equity Mutual Fund In 2007 1.0 Introduction 1.0.1 Chapter Description In this chapter, explaining the background of the study, problem statement, objectives of the study, hypotheses, significance of this study, as well as the scope and limitations during the process of completing this study. 1.0.2 Background of the Study Portfolio evaluation is on the time before 1960. Investors evaluated portfolio performance almost entirely on the basis of the rate of return. They were aware of the concept of risk but did not know how to quantify or measure it, so they could consider it explicitly. Developments in portfolio theory in the early 1960s showed investors on how to quantify and measure risk in terms of the variability of returns. Still, because no single measure combined both return and risk, the two factors had to be considered separately as researchers such as Friend, Blume, and Crockett (1970). Specifically, the investigators grouped portfolios into similar risk classes based on a measure of risk (such as the variance of return) and compared the rates of return for alternative portfolios directly within these risk classes. Before 1960, investors evaluated portfolio performance almost entirely on the rate of return, although they knew that risk was a very important variable in determining investment success. The reason for omitting risk was the lack of knowledge on how to measure and quantify it. After the development of portfolio theory in early 60s, and CAPM in subsequent years, risk, measured as either by standard deviation or beta, was included in evaluation process. However, since there was not a single measure combining return and risk, two factors were to be considered separately that were researchers grouped portfolios into similar risk classes and compared rates of return of portfolios in the same risk class. There are many kinds of measurement such as Jensen, Treynor and also Sharpe to evaluate the companys portfolio performance. Jensens alpha has been a popular performance measure because it is a return concept. Related to Dr. William F. Sharpes contribution to style analysis of investment performance, the Sharpes alpha is related to the Jensens alpha in the sense that both measures excess returns. They differ, however, in the selection and construction of benchmarks. Sharpe (1966) developed a composite index which was very similar to the Treynor measure, the only difference was that it was being used as standard deviation, instead of beta. To measure the portfolio risk, the researcher needs the average rate of return for Portfolio during a specified time period, the average rate of return on risk-free rate during the same period, Sharpe performance index and the standard deviation of the rate of return for Portfolio during the time period. Sharpe preferred to compare portfolios to the capital market line (CML) rather than the security market line (SML). Sharpe index, therefore, evaluated funds performance based on both rate of return and diversification (Sharpe 1967). For a completely diversified portfolio Treynor and Sharpe indices would give identical rankings. Although the mutual fund industry in Malaysia started as far back as 1959 with the establishment of the Malayan Unit Trust Ltd, the development of the industry did not take-off until the 1980s with the launching of the Amanah Saham Nasional (ASN). In 2004, the Commission approved 17 new Syariah-based unit trust funds, bringing the total number of such funds to 71 or 24.4% of the total 291 approved funds in the industry as at the end of 2004 (2003: 55 funds or 24.3% of the total industry). Of the 71 Syariah-based unit trust funds, 14 were balanced funds, 14 were bond funds, 39 were equity funds, 2 two were fixed income funds and two were money market funds. The number of units in circulation for Syariah-based unit trust funds also increased from 8.59 billion units as at the end of 2003 to 13.16 billion units in 2004. The number of accounts registered an increase of 23.4% or 80,848 accounts, with a total of 427,000 accounts in 2004. One conventional fund made changes to its investment objectives and operations which enabled it to comply with the requirements of Syariah-based unit trust funds. In terms of value, the NAV of Syariah-based unit trust funds grew to RM6.76 billion representing 7.7% of the industry, an increase of 0.9% from the previous year. Over a 10-year period (1995-2004), the NAV of Syariah-based unit trust funds grew at a compounded annual growth rate (CAGR) of 26.18% while the overall industry CAGR was 7.89%. The recognition of the increasing dominance and importance of unit trusts as an investment instrument has spurred researchers to devise appropriate techniques to assess portfolio performance. The earlier works by Sharpe (1966), Treynor (1965) and Jensen (1968) represented significant contributions to the evaluation of portfolio performance. Therefore, the primary aim of this paper is to present new evidences for the analysis of companies portfolio performance using Sharpe ratio by studying the differences the performance between Malaysian conventional and Islamic Equity Mutual Fund in 2007. 1.0.3 Overview of Conventional and Islamic Mutual Fund Mutual fund or better known as unit trust in Malaysia is an investment vehicle created by asset management companies specializing in pooling savings from both retail and institutional investors. Individual investors seeking liquidity, portfolio diversification and investment expertise are increasingly choosing unit trust funds as their investment vehicle. However, these investors do differ in their preferences based on their risk threshold, liquidity needs and their needs to comply with religious requirement. In the Malaysian context, the performance of mutual funds or more popularly known as unit trust funds as reported by Shamsher and Annuar (1995), Tan (1995), Leong and Aw (1997), Annuar et al,. (1997) and Low and Noor A. Ghazali (2005) concluded that on average, funds were unable to beat the market. The number of unit trust has grown dramatically in recent years. Unit trusts are now the preferred way for individual investors and many institutions to participate in the capital markets, and their popularity has increased demand for evaluations of fund performance. Muslims are not allowed to invest in standard mutual funds since their religion prohibits them from investing in certain equities, like those of banks or companies that deal in pork, alcohol, pornography and certain entertainment related products. An Islamic mutual fund is similar to a â€Å"conventional† mutual fund in many ways; however, unlike its â€Å"conventional† counterpart, an Islamic mutual fund must conform to the Sharia (Islamic Law) investment precepts. The Sharia encourages the use of profit sharing and partnership schemes, and forbids riba (interest), maysir (gambling and pure games of chance), and gharar (selling something that is not owned or that cannot be described in accurate detail; i.e., in terms of type, size and amount) (El-Gamal 2000). The Sharia guidelines and principles govern several aspects of an Islamic mutual fund, including its asset allocation (portfolio screening), investment and trading practices, and income distribution (purification). When selecting investments for their portfolio (asset allocation), conventional mutual funds can freely choose between debt-bearing investments and profit-bearing investment, and invest across the spectrum of all available industries. An Islamic mutual fund, however, must set up screens in order to select those companies that meet its qualitative and quantitative criteria set by Sharia guidelines. 1.1 Problem Statement At some levels, people are always interested in evaluating the performance of their investments. Having to spend the time and incurred the expense to design an asset allocation strategy and select the specific set of securities to form their portfolios, investors whether they are individuals, corporations, or financial institutions. It must be periodically determined whether this effort is worthwhile. Investors in managing their own portfolios should evaluate their performance, as should those who pay one or several professional money managers to make these decisions for them. It is imperative to determine the realized investment performance which justifies the additional costs of engaging professional management. Comparing a portfolios historical returns to those produced by other managers or indexes can be instructive; such comparisons do not produce a complete picture of the portfolios performance. Indeed, the central tenet of the modern approach to performance measurement is that it is impossible to make a thorough evaluation of an investment without explicitly control the risk of the portfolio. Given the complexity and importance of the issues involved, it is not a surprise to learn that there is not a single universally accepted procedure for risk-adjusting portfolio returns. Nevertheless, there are several techniques that are commonly employed. Some previous studies found results that are inconsistent with Chuas findings. These studies include Ewe (1994), Shamsher and Annuar (1995), and Tan (1995). Shamsher and Annuar (1995), focused their study on the performance of 54 unit trusts covering the period of late 80s to early 90s. They found out that the returns on investment in unit trust were well below the risk free and market returns. Furthermore, the results indicated that not only the degree of portfolios diversification was below expectation but the actual returns and risk characteristics of funds were also inconsistent with their stated objectives. Tan (1995) analyzed performance of 12 unit trusts over a 10-year period, 1984-1993. He concluded that unit trusts in general perform worse than the market portfolio. Consistent with Chuas findings, Tan also concluded that government sponsored funds performed better than private funds. As we can see, there are three portfolio performance evaluation techniques that comprise the basic ‘toolkit for measuring risk-adjusted performance. Although some redundancy exists among these measures, each of them provides unique perspectives, so that best viewed as complementary measures. In particular, examining the controversy surrounding the selection of the proper benchmark to use in the risk-adjustment process and discussing why these benchmark problems become larger when beginning to invest globally. From here, how to evaluate the performance of the investments in order to reduce the risk taken? What measurement can contribute to evaluating a good investment? Therefore, it is interesting to analyze the companies portfolio performance by studying on the differences in the performance between conventional and Islamic equity mutual fund in Malaysia by using Sharpe ratio. 1.2 Objectives of Research The general purpose of this study is to analyze the companies portfolio performance using Sharpe ratio by studying on the differences in the performance between conventional and Islamic equity mutual fund in Malaysia. A careful review on those questions has led to the development of the following specific research objectives which are: i. To measure and rank both relative quantitative performances of mutual fund (conventional/Islamic) on the basis of their return, total risk, coefficient of variation and Sharpe ratio. The term performance contains both the return and the risk undertaken by these mutual funds. ii. To investigate whether both mutual funds (conventional/Islamic) are earning higher returns than the benchmark returns (or market Portfolio/Index returns) in terms of risk. iii. To determine the relationship between dependent variable and independent variable. 1.3 Scope of Study The study is on the analysis of the companies portfolio performance in determining the measure of average daily return, total risk (standard deviation), coefficient of variation and Sharpe ratio. Moreover, to observe the differences in terms of performance between conventional and Islamic mutual fund in the context of Malaysian capital market by comparing them to the stock market index or Kuala Lumpur Composite Index (KLCI) benchmark. The scopes of the study are stated as follow:  § The relationship between two variables: the return on equity mutual fund as the dependent variable whereas the return on stock market index (KLCI) as the independent variable for conventional and Islamic fund.  § The period of study will cover one (1) year starting from January 2007 to December 2007 using the daily basis collected from The Star and New Straits Times newspapers and also from the internet.  § This research will also focus on the conventional and Islamic Equity Mutual Fund companies available in Malaysia. 1.4 Theoretical Framework The theoretical framework shows the relationship between the independent variables and dependent variable. The independent variable is the return on KLCI while the dependent variable is the return of Equity Mutual fund companies in Malaysia. Schematic diagram for the theoretical framework in this study is as follows: Market Index Equity Fund Market Index Islamic Equity Fund Independent Variable Dependent Variable 1.5 Hypotheses According to Uma Sekaran (2003), a hypothesis can be defined as a logically conjectured relationship between two or more variables expressed in the form of testable statement. Hypothesis can be divided into two categories which are Ho which is a Null Hypothesis and Ha which is an Alternate Hypothesis. The term â€Å"null† can be thought of as meaning â€Å"no change† or â€Å"no difference†. The second hypothesis is called alternative hypothesis. It is summary of the case if the null hypothesis is not true. It is stated that Ha, the alternative hypothesis is a statement of a view that has been prepared to be accepted if Ho is rejected. The hypotheses of this study are: Hypothesis 1: Ho: There is no relationship between the return on KLCI and the return on Conventional equity mutual fund. Ha: There is a relationship between the return on KLCI and the return on Conventional equity mutual fund. Hypothesis 2: Ho: There is no relationship between the return on KLCI and the return on Islamic equity mutual fund. Ha: There is a relationship between the return on KLCI and the return on Islamic equity mutual fund. 1.6 Limitations of the Study Data Collection and Cost Limitation The major source of data gained is from the secondary sources. The data is only available at certain places and it requires cost to obtain the data. Besides, it also requires costs in the process of printing, photocopying, data services and transportations to obtain the information. The information about the topic studied is also difficult to search in the library because of the limited information. As a result, it causes problems to the researcher to gather and collect the information. The information and data related to the study is rather difficult to obtain. Thus, the accuracy of the study depends on the accuracy of the data available and may not perfectly precise. In addition, data is also limited since it relies on the secondary sources alone. Lack of Experience and Expertise Since this research is the first research experience for the researcher, undoubtedly there are still lots of things to improve. The lacks of experience especially in data collection and time management have been the limitations to the researcher. Moreover, the researcher has limited knowledge on the topic and needs more understanding on the topic studied. Time Constraint Time is very limited for the researcher to complete the research. The researcher has to be very smart in scheduling the time to make sure the research is completed in time. Thus, time constraint has been identified as one of the limitations for the researcher. 1.7 Significance of the Study This research analyzes on the companies portfolio performance using Sharpe ratio by studying on the differences in the performance between conventional and Islamic Equity Mutual Fund in Malaysia. Therefore this study will provide some information that can be useful because the data and findings from this research will help other researchers to produce better result in their research. This research is also significant to: To Researcher As a finance student, issues in measuring portfolio performance are so much important and crucial. By studying about measurement of portfolio performance in depth, a better understanding and knowledge is gained. This research has given the researcher the opportunity to get the experience in practice as well as in theories. To other researcher This study also can be a useful reference to other researchers who are keen to carry on the study regarding the performance of mutual fund in Malaysia. There are several fruitful areas in this study that can be further examined by other researchers. Further study will give an opportunity to other researchers to expand their view and knowledge. To do so, they need to refer to numerous literatures and hopefully, this research can come in handy for them. To Finance Students This research will be very useful for finance students in having more knowledge about the companys portfolio performance and the differences in the performance between conventional and Islamic Equity Mutual fund in Malaysia. They can use this research as a guide and as references in their studies in portfolio management and mutual fund in Malaysia. To Businesses This research is very important to businesses in realizing the effects of portfolio management on their performance. This is important so that they will have clear direction in deciding their investment. To Investors This study plays an important role in decision making since it gives the investors a prior knowledge of which Equity Mutual Fund companies is the best to invest and whether those companies provide high returns on investment. Moreover, revealing the specific volatility patterns in returns might also benefit investors in risk management and portfolio optimization. This research is also important to investors so that they can have a clearer picture of their investment choices. For investors the study can help them to know the risk and return of their investment transaction. 1.8 Definition of Terms Portfolio A collection of investments are all owned by the same individual or organization. These investments often include stocks, which are investments in individual businesses; bonds, which are investments in debt that are designed to earn interest; and mutual funds, which are essentially pools of money from many investors that are invested by professionals or according to indices. Sharpe Ratio A risk-adjusted measure developed by William F. Sharpe, calculated using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the funds historical risk-adjusted performance. Mutual Fund (Unit Trust) A form of collective investment constituted under a trust deed or a pooled investment plan where the capital contributions of investors are combined into a legally formed trust fund. Equity fund Equity fund or stock fund is a fund that invests in Equities more commonly known as stocks. Such funds are typically held either in stock or cash, as opposed to bonds, notes or other securities. Return Based on Investopedia definition, return can be defined as the gain or lossof an investment over a specified period, expressed asa percentage increase over the initial investment cost. Gains on investments are considered to beany income received from the security, plus realized capital gains. Risk The quantifiable likelihood of loss or less-than-expected returns Risk-adjusted return A measure of how much an investment returned in relation to the amount of risk it took on. Often used to compare a high-risk, potentially high-return investment with a low-risk, lower-return investment. Benchmark A standard, used for comparison. For example, the Nasdaq may be used as a benchmark against which the performance of a technology stock is compared. Regression Analysis A statistical technique used to find relationships between variables for the purpose of predicting future values. Coefficient of Determination A measure of the correlation between the dependent and independent variables in a regression analysis. R-squared A measurement of how closely a portfolios performance correlates with the performance of a benchmark index, such as the SP 500, and thus a measurement of what portion of its performance can be explained by the performance of the overall market or index. Values for r-squared range from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation. Kuala Lumpur Composite Index (KLCI) The Kuala Lumpur Composite Index (KLCI) is a stock market index generally accepted as the local stock market barometer. KLCI was introduced in 1986 to public the need for a stock market index which would serve as an accurate performance indicator of the Malaysian stock market as well as the economy. It is used to be the main index, and is now one of the three primary indices for the Malaysian stock market which the other two are FMB30 and FMBEMAS, Bursa Malaysia. It contains 100 companies from the Main Board with approximately 500 to 650 listed companies in the Main Board which comprise of multi-sectors companies across the year 2000 to 2006 and is a capitalization-weighted index. 2.0 Literature Review 2.1 Chapter Description Literature review is the documentation of a comprehensive review of the published and unpublished work from the secondary sources of data in the areas of specific interest to the researcher. The reason of the literature review is to ensure that no important variable that has in the past been founded repeatedly to have an impact on the problem is ignored. (Uma Sekaran, 2005 page 63). 2.2 Literature Review of Evaluated Portfolio Performance Craig W. French (2003) discussed on what is involved in evaluating portfolio performance, including the need to adjust for differential risk and differential time periods, the need for a benchmark, and constraints on portfolio managers. It also considered the difference between the portfolios performance and the managers performance. For measurement this paper used well-known risk-adjusted (composite) measures of Sharpe portfolio performance. Investors who had all (or substantially all) of their assets in a portfolio of securities should rely more on the Sharpe measure because total risk is important. Joel Owen and Ramon Rabinovitch (1998), for the last four decades, numerous authors have been suggesting methods to evaluate portfolio performance. Sharpe (1966) proposed performance measures which had produced a score for every portfolio being evaluated. These scores were used to compare the performance of any two portfolios or rank the performance of all portfolios in a given set. The earlier works by Sharpe (1966), Treynor (1965) and Jensen (1968) represented significant contributions to the evaluation of portfolio performance. 2.3 Literature Review of Sharpe Ratio Francisco Peà ±aranda (2007) in her paper commented on developments beyond mean-variance preferences to some alternatives to the Sharpe ratio. The main goal of those measures was to give a similar ranking to Sharpe ratios when returns were symmetrically distributed and showed a preference for skewness when they were not. Moreover, performance measures could be used to guide asset allocation since they can be used as the criterion to maximize with portfolio. Raphie Hayat (2006), the attractiveness of the Sharpe Ratio came from its intuitiveness and simplicity. The Sharpe Ratio are simple because it could rank funds on the base of a single and intuitive since it only rewarded funds with a higher ratio if their returns were higher with the same level of risk or if the risk was lowered while keeping the same level of return. Zhidong Bai, Keyan Wang, and Wing-Keung Wong (2006) stated that the asset performance evaluation was one of the most important areas in investment analysis. In order to compare the performance among assets, several statistics had been developed and among them, the Sharpe-ratio statistic was the most prevalent. However, the major limitation of the Sharpe-ratio statistic was that its distribution is only valid asymptotically, but not valid for small samples. Nevertheless, it was important in finance to test the performance among assets for small samples. Tzu-Wei Kuo and Cesario Mateus (2006), the Sharpe ratio was well known risk-adjusted performance measures and easily understood by an individual investor. Thus, investors could evaluate the exchange-traded funds (ETFs) performance, based on the Sharpe ratio. However, the Sharpe ratio relied on the assumption that returns were normally distributed having these measures difficulty in evaluating the performance with skewed return distributions. Martin Eling and Frank Schuhmacher said that the classic Sharpe ratio was adequate in evaluating investment funds when the returns of those funds were normally distributed and the investor intended to place all his risky assets into just one investment fund. Because hedge fund returns differed significantly from a normal distribution, other performance measures had been proposed and encouraged in both academic and practice-oriented literature. The Sharpe ratio measured the performance of an investment fund by considering the relationship between the risk premium and the standard deviation of the returns generated by a fund. The Sharpe ratio were an adequate performance measure if the returns of the investment funds were normally distributed and the investor wished to place all his risky assets in just one investment fund. Andreas G Merikas, Anna A Merikas and Ioannis Sorros (2005) examined the exact relationship between the Sharpe ratio and the information ratio. Sharpe in 1994 asserted that the information ratio was a generalized Sharpe ratio. Sharpe ratios had been estimated for each fund in each category, and an average ratio for each category. The Sharpe ratio would generally be positive since excess returns of funds over the risk free rate would be positive, unlike excess returns of funds over the market, which could be negative, as the return of the risk free bond was smaller but at the same time less volatile than the return of the market. Cheryl J. Frohlich, Anita Pennathur and Oliver Schnusenberg in their research, Sharpe reward-to-variability ratio was used if total variability was thought to be the appropriate measure of risk, a stocks (portfolios) risk-adjusted returns could be computed using the Sharpe Index. The Sharpe and Treynor Index eliminated the problem of only considering return as a measure of performance. However, neither ratio was independent of the time period over which it is measured. This means that the ratio can change from one period to another with different results. Moreover, both ratios also ignored the correlation of a fund with other assets, liabilities, or previous realizations of its own return. Mario Onorato (2004), the Sharpe Ratio of any investment was defined as its excess return, it is return in excess of a benchmark return divided by the standard deviation of excess return. The benchmark represents a risk free investment alternative. Moreover, although the Sharpe ratio has become part of the modern financial analysis, its applications typically did not account for the fact that it was an estimated quantity, subject to estimation errors that would be substantial in some cases. The statistical properties of Sharpe ratios depended intimately on the statistical properties of the return series on which they are based. This suggests that a more sophisticated approach to interpreting Sharpe ratios is called for, one that incorporates information about the investment style that generates the returns and the market environment in which those returns are generated. Wei Zhen (2004), in his paper said that the Sharpe (1966) and Treynor (1965) performance measures were widely accepted in both academia and industry to assess the Risk-adjusted value of a particular portfolio. It could be shown, after some mathematical treatment, that the Sharpe performance measure was useful when the portfolio of interest represented all of the investors investment, while Treynors measure was preferred when the portfolio under discussion was only a portion of the whole investment package. Robert McCauley and Guorong Jiang (2004), through the Sharpe ratio it compared the returns of portfolios in relation to their risk by dividing their returns in excess of the riskless rate of return by the volatility of their returns. A portfolio with a higher Sharpe ratio was preferred in that it offered a higher return per unit of risk, as measured by return volatility. William Goetzmann, Jonathan Ingersoll, Matthew Spiegel and Ivo Welch (2002), the Sharpe ratio is one of the most common measures of portfolio performance. It was used as a tool for evaluating and predicting the performance of mutual fund managers. Since then the Sharpe ratio, and its close analogues the Information ratio, the squared Sharpe ratio and M-squared, have become widely used in practice to rank investment managers and to evaluate the attractiveness of investment strategies in general. The appeal of the Sharpe measure was clear. It was an affine transformation of a simple t-test for equality in means of two variables, the first variable being the managers time series of returns and the second being a benchmark. The Sharpe ratio was also ubiquitous in academic research as a metric for bounding asset prices. Andrew Worthington and Helen Higgs (2002), the Sharpe ratio (also known as the reward-to-volatility ratio) indicated the excess return per unit of risk and was calculated by dividing the return in excess of the risk-free rate by the standard deviation of returns. In the current context, the Sharpe ratio was the most appropriate performance measure for an investor whose portfolio was composed wholly of a given artists work. Verena Kugi (1999), the Sharpe ratio measured the change in the portfolios return with respect to a one unit change in the portfolios risk. The higher this Reward-to-Variability-Ratio the more attractive was the evaluated portfolio because the investor received more compensation for the same increase in risk. Graphically, the Sharpe ratio was equal to the slope of a straight line connecting the position of the evaluated portfolio, for example a fund, with the risk-free rate. To determine the quality of performance, the Sharpe index of the evaluated portfolio was compared to the Sharpe index of the market or benchmark portfolio. The portfolios Sharpe index being higher than the markets Sharpe index indicated that the portfolio manager had outperformed the market. Respectively, a lower Sharpe ratio was a sign of underperformance. Any portfolio that was positioned on the capital market line had a Sharpe ratio equal to that of the market and was therefore characterized by neutral perform ance. Youguo Liang and Willard McIntosh (1998), the Sharpes alpha captured the excess return of