Piety and Profits: Stock Market Anomaly During the Muslim Holy Month

Abstract:     
Observed by more than 1.5 billion Muslims, Ramadan is one of the most celebrated religious rituals in the world. We investigate stock returns during Ramadan for 14 predominantly Muslim countries over the years 1989-2007. The results show that during Ramadan stock returns are almost 9 times higher, but less volatile, than during the rest of the year. No discernible difference in trading volume is recorded. We find these results consistent with a notion that Ramadan positively affects investor psychology, as it promotes feelings of solidarity and social identity among Muslims world-wide, leading to optimistic beliefs that extend to investment decisions.

Keywords: Ramadan Effect, Behavioral Finance, Market Efficiency, Religion

JEL Classifications: G12, G14

Working Paper Series