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

Abstract:     
Venerated by more than 1.5 billion Muslims around the world, Ramadan is one of the most celebrated religious rituals in the world. This study investigates daily returns for a sample of 129 Ramadan months for 14 predominantly Muslim countries over the years 1989-2007. The results show that in Ramadan stock returns are on the average noticeably higher, but less volatile, than the rest of the year. The results do not reveal a discernible difference in trading volume between Ramadan and other months of the Islamic lunar year. We find these results consistent with a notion that Ramadan positively affects investor psychology as it promotes senses of solidarity, cooperation, and social identity to Muslims around the world, leading to optimistic beliefs that extend into their investment decisions.

Keywords: Ramadan effect, calendar anomaly, investor behavior, market efficiency

JEL Classifications: G12, G14

Working Paper Series