News / Middle East

The Ramadan Effect: Muslim Stock Markets Rally in Month of Fasting

During the holy month of Ramadan, stock returns are almost nine times higher in predominately Muslim countries than at any other time of the year

Multimedia

Audio
  • Finance Professor Ahmad Etebari speaks with VOA's Cecily Hilleary

Cecily Hilleary

Economists have long known that moods, weather, even religious beliefs can affect investor behavior.  Now, a new study shows that stock returns during the Muslim Holy Month of Ramadan, vary significantly from those at other times of the year. 

Ahmad Etebari is a Professor of Finance and chair of the University of New Hampshire Department of Accounting and Finance.  He is also lead author of the paper, “Fast Profits: Investor Sentiment and Stock Returns During Ramadan.”  Reporter Cecily Hilleary asked him to explain the so-called “Ramadan Effect.”

Etebari: During the Holy Month, we find that on average, stock returns are almost nine times higher in predominantly Muslim countries than during other times of the year.

Hilleary: That is a tremendous difference—how did you conduct this study?

Etebari: The time period covers 1989 to 2007, and the countries include – there are fourteen countries, just about every country for which we could collect the data included in the study:  Those which were predominantly Muslim countries.  We set the bar to have at least 50% Muslim population, and on average, they have about 90 or 91 percent predominant Muslims in the countries [sic].   

Hilleary: Are there any other factors that could explain these findings, and did you look at these factors?

Etebari: That’s an excellent question, especially looking into factors that affect the return-generating process in the stock market—in other words, factors that affect the stock prices in a conventional sense:  Market liquidity, length of the daily fasting period, especially contrasting summer months with winter months when Ramadan coincides with one versus the other, with the length of day being really longer during summer months.   We controlled for that.  We controlled for liquidity.  We controlled for other well-known fixed calendar (we call them Gregorian anomalies), notably, “day of the week” effect, like Monday, “January effect,” “Halloween effect,” and none of those factors explained results.

We also looked at the impact of foreign exchange markets where their currencies were causing that. That did not explain the results either.

Hilleary: How do you explain the findings?

Etebari: Ramadan is really a fundamental shared experience by Muslims.  In a sense, it gives Muslims a sense of social identity and it is embraced by just about everyone.  The rituals enhance their satisfaction with life and create optimistic beliefs.  So, essentially we borrow from research in psychology that shows that religion affects believers’ moods, happiness and risk-taking attitudes.

Hilleary: So happy Muslims make good investments?

Etebari: I would say happy people could undershoot—underestimate--risks.

Hilleary: Obviously there are implications for investors.

Etebari: Indeed.

Hilleary: Are you saying that this could be used as a formula for making some big profits in the market?

Etebari: Always looking into the rear view mirror, you can always make money.  But once these opportunities are discovered, it will be harder and harder to detect again, because opportunities get arbitraged out of the market.  But the basic implication is that if the past repeats itself, if one could replicate the past, the implication is as follows:  Those seeking to gain fast profits, they should try and profit from the [Ramadan] fast, buying shares prior to the start of Ramadan and selling them at the end of the Holy Month or, preferably, immediately after Eid al-Fitr, where our results begin to decline.  

Hilleary: There are no guarantees—you’re not handing out guarantees?

Etebari: There’s no such thing as guarantees in finance.  This is really what has happened in the past, and any opportunities in the market could close out once they are known by one person or in one market, as I said these opportunities could quickly get or be arbitraged out.

You May Like

US Imposes Sanctions on Alleged Honduran Drug Gang

Treasury department alleges Los Valles group is responsible for smuggling tens of thousands of kilograms of cocaine into US each month More

At 91, Marvel Creator Stan Lee Continues to Expand his Universe

Company's chief emeritus hopes to interest new generation of children in superheroes of all shapes and sizes by publishing content across multiple media platforms More

Photogallery New Drug Protects Against Virus in Ebola Family

Study by researchers at University of Texas Medical Branch, Tekmira Pharmaceuticals is first looking at drug's effectiveness after onset of symptoms More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
African Media Tries to Educate Public About Ebolai
X
George Putic
August 20, 2014 8:57 PM
While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls for Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid