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

Video Obama Announces Plan to Send 3,000 Troops to Liberia in Ebola Fight

At US Centers for Disease Control and Prevention, Obama details troop deployment and other pieces of US plan More

Video China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa 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.
Enviropreneur Seeks to Save the Environment, Empower the Communityi
X
September 16, 2014 2:06 PM
Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid