Technical efficiency of Islamic equity capital market: Empirical evidence from Malaysian Islamic REITs

The paper examines the technical efficiency of the newly emerged Islamic equity capital market institutions in Malaysia, particularly by drawing on the experience of Malaysian Islamic Real Estate Investment Trusts (REITs) between 2010 and 2014. Our non-parametric approach of Variable Return to Scale Data Envelopment Analysis (VRS-DEA) results suggest that pure technical inefficiency has greater attribute towards the source of inefficiency for Malaysian Islamic REITs during the period of study. The inefficient REITs could enhance their efficiency gains through better handling and utilisation of the input resources. Islamic REITs also exhibit persistent optimum return to scale, with higher percentage of Malaysian Islamic REITs operating at constant return to scale compared to conventional REITs, implying that the Sharia guidelines and requirements which limit their investment universe did not hinder their scale efficiency