funds. However, they do not exhibit similar de-sensitivity to poor performance when investing in conventional funds. This provides evidence that such investors treat Islamic investments differently from other investments. We also provide further evidence that this holds even when socially responsible funds are available as an investment option, suggesting that investors do not view Islamic and socially responsible funds as substitutes.

Socially responsible investments<sup>7</sup> have attracted the attention of both the academic literature, and a large portion of the finance industry (see, for example, Cowton, 1999; MacKenzie, 1998; Rockness and Williams, 1988; Williams, 1999; Lewis and MacKenzie, 2000; BarredaTarrazona et al., 2011; Hartzmark and Sussman, 2019; among others). The literature has not only focused on the investment metrics of the asset class, but also investor motives.<sup>8</sup> However, less has been written about religious preferences and their impact on investor behavior. The influence of religion on economic and financial attitudes has been acknowledged since the seminal work of Weber (1930). Guiso et al. (2003; 2006) and Stulz and Williamson (2003) identify specific economic and social attitudes associated with religion. Guiso et al. (2003) found that the intensity of religious beliefs is positively associated with “good” economic attitudes (defined as conducive to higher pre-capita income and growth). Stulz and Williamson (2003) find that religion (as a proxy for culture) predicts cross-sectional variation in creditor rights. Moreover, religion is an even better predictor than a country’s openness to international trade. Hence, religion tends to be a strong motivator in general.

More recently, religion and economic attitudes have been investigated in the context of financial markets and corporations. The consensus among many studies is that religiosity is negatively correlated with risk-taking, and that both religiosity and risk aversion have an influence in the corporate sector (Hilary and Hui, 2009; Blau, 2017), the banking sector (Adhikari and Agrawal, 2016), and even influence the decision-making process of venture capitalists (Chircop et al., 2020). Further, recent work reports a positive correlation between religiosity and investor loyalty (i.e. lower fund flows volatility) in the mutual fund industry (Peifer, 2011; Rao et al., 2015). Taken together, these results suggest that religious investors prefer funds with lower risk, and are less likely to switch away once they undertake an investment decision. Additionally, firms located in areas with high levels of religiosity are less likely to experience future stock price crashes (Callen and Fang, 2015; Blau, 2017; Chourou, 2020).

A common factor among these studies is that religiosity of companies and fund managers are proxied by the level of average religiosity in the local geographical area<sup>9</sup> (where they have their headquarters). Specific to the mutual fund industry, ex-post transactional data are employed in the analysis. The findings of this literature are derived with secondary data, which make it difficult to disentangle pecuniary from non-pecuniary motives in investor behavior.

> 7 In this paper, we refer to sustainable investments, socially responsible investments or ESG investments as synonyms, although we are aware of potential differences among them. In this respect we take the approach of Hartzmark and Sussman (2019), who employ ESG ratings and ESG funds to discuss the interest of investors in sustainable investing. 8 Among many, the very recent work of Hartzmark and Sussman (2019) found that investors largely value sustainability using the introduction of the ESG rating by Morningstar in 2016 as a natural experiment to investigate asymmetries in the fund flows of mutual fund with different ESG rating scores.

> 9 Other studies that explore the influence of religiosity in business related context and investment decision making process also employ survey data. See, for example, Adeel et al.(2022), who explored the role of religiosity in the context of financial reporting and auditors judgment. Anglin et al. (2022) examine the role of religiosity within microfinance campaigns through a field-study.