The impact of Islamic events on herding behaviour in Saudi Arabian equities market

Abstract

Using data from Saudi Arabia, a strictly religious society, we examine how Islamic events (i.e., Ramadan, Eid‐ul‐Fitr, Eid‐ul‐Adha and Ashoura) moderate the impact of social mood (positive and negative) on herding in the stock market. We use the cross‐sectional absolute deviation (CSAD) of returns and find that investors' mood during Islamic events of Eid‐ul‐Fitr, Eid‐ul‐Adha and Ashoura significantly affects herding behaviour in the market. Our results, however, contrast with existing evidence of herding in the month of Ramadan. Overall, results are robust after controlling for market conditions (i.e., domestic and US market returns, liquidity, sentiments, and oil price volatility) and crisis events (i.e., global financial crisis and Arab Spring). Though most prior research investigates the impact of individual Islamic events on stocks as seasonal anomalies, our study contributes by jointly exploring how four key Islamic events, associated with contrasting moods, induce diverse herding patterns in the Saudi stock market.

Ramazan Ayi Ve Sürü Davranişi: Borsa İstanbul Üzeri̇ne Bi̇r Araştirma

“…This result does not change for rising and falling market conditions and different days of Ramadan (first, second, last ten days, and odd and even numbered days in the last ten days). On the other hand, this result is the same as the results of studies in the literature (Gabbori at al., 2022;Elshqirat, 2020;Yousaf at al., 2018), which empirically prove that Ramadan does not cause herding behavior. Another result obtained in the study is that herding behavior is observed in Borsa Istanbul, except for Ramadan days and in rising market conditions.…”

“…(2022) investigated the effect of social mood on herding behavior caused by Islamic events such as Ramadan, Eid al-Fitr, Eid-al-Adha, and Ashoura Day in the Saudi Arabian market. In this study of Gabbori at al. (2022), contrary to the findings mentioned above of Gavriilidis at al.…”

“…In the study, we used the methodology applied by Gavriilidis at al. ( 2016) and Gabbori at al. (2022) to determine the effect of Ramadan on herding behavior in Borsa Istanbul.…”

“…The authors also found that funds exhibited more herding behavior on Mondays during Ramadan than on other days. Recently, Gabbori at al. (2022) investigated the effect of social mood on herding behavior caused by Islamic events such as Ramadan, Eid al-Fitr, Eid-al-Adha, and Ashoura Day in the Saudi Arabian market.…”

Ramadan effect and indices movement estimation: a case study from eight Arab countries

“…The Ramadan effect deviates among countries as the efficiency levels of their markets vary; this makes the opportunities open to achieve probable abnormal returns. Gabbouri (2018) argued that the level of uncertainties has been amplified during the global economic crisis and Arab spring where the investors’ behavior seemingly has deviated from rationality Ali et al (2017) found that stock markets are less risky during Ramadan days. Moreover, the Ramadan effect differs according to the size of the firm, as small firms’ returns were much higher during Ramadan.…”