Cross-Sectional and Time-Series Momentum Returns and Market Dynamics: Are Islamic Stocks Different?
35 Pages Posted: 11 Apr 2017 Last revised: 19 Nov 2017
Date Written: November 18, 2017
We search for differences in both unconditional and conditional momentum returns of Islamic and Non-Islamic stocks and test implications of competing behavioral theories that aim to explain momentum returns. Our results show that there is no significant difference in momentum returns between Islamic versus Non-Islamic stocks with respect to both cross-sectional (CS) and time-series (TS) momentum strategies even when we condition momentum returns on market dynamics, information uncertainty (IU), and idiosyncratic volatility (IV). We also find that the TS strategy outperforms (underperforms) the CS strategy in market continuations (transitions) consistent with the recent evidence in the U.S. market. Furthermore, we find that CS and TS strategies of both Islamic and Non-Islamic stocks are profitable only when the market continues in the same state consistent with overconfidence driving momentum returns of both Islamic and Non-Islamic stocks.
Keywords: Islamic stocks; Cross-sectional; Time-series; Momentum returns; Market dynamics
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation