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][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005][2006][2007]. The results show that stock returns during Ramadan are almost nine times higher and 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.
JEL Classifications: G12, G14Keywords: Ramadan Effect, Behavioral Finance, Market Efficiency, ReligionThe authors would like to thank the Institute of Finance Professionals New Zealand Inc. for awarding this study the best paper prize in the investment category and MSCI Barra for providing useful data. The paper has been benefited from the comments of Warwick Anderson, Henk Berkman, Magdalena Bialkowska, Glenn Boyle, Stephen Ciccone, Eric Crampton, Timothy Crack, Mehrun Etebari, Aaron Gilbert, Robin Grieves, Ben Jacobsen, Jayant Kale, Brendan Lambe, Warren McNoe, Philip Meguire, Debra and Bob Reed, participants of the 14 th New Zealand Finance Colloquium, the 2 nd Finance and Corporate Governance Conference at the La Trobe University, the 2010 Annual Meeting of the Academy of Behavioral Finance & Economics, and seminar participants at the University of New Hampshire, University of Otago, University of Canterbury, Queensland University of Technology and the European University Viadrina. The authors retain the sole responsibility for all remaining errors. An earlier version of this paper has been circulated under the title "Piety and Profits: Stock Market Anomaly during the Muslim Holy Month".
