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Religiosity vs. well-being effects on investor behavior

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  • Klein, Paul-Olivier
  • Turk, Rima
  • Weill, Laurent

Abstract

Does religiosity impact the trading of securities in financial markets? We separate two channels that could affect investor behavior, disentangling a religiosity effect from a well-being effect. Our original identification strategy compares the stock market reaction to sukuk and bond issuance during the holy month of Ramadan, allowing for a differentiated stock market reaction to the religious component of a trade. Using the event study methodology, we measure abnormal returns for a sample of 2140 issuances by 133 issuers in Malaysia over the period 2000–2013. While we find evidence for both channels, sukuk issuance during Ramadan is valued more positively than bond issuance by stock market investors. Further, the positive reaction to sukuk issuance during Ramadan only rewards firms which issue sukuk exclusively. Our findings support the view that religiosity influences the behavior of investors, suggesting that this factor should be taken into account in the analysis of financial markets.

Suggested Citation

  • Klein, Paul-Olivier & Turk, Rima & Weill, Laurent, 2017. "Religiosity vs. well-being effects on investor behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 50-62.
  • Handle: RePEc:eee:jeborg:v:138:y:2017:i:c:p:50-62
    DOI: 10.1016/j.jebo.2017.04.009
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    2. Francis Osei-Tutu & Laurent Weill, 2021. "How language shapes bank risk taking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(1), pages 47-68, April.
    3. Emmanuel Amissah & Katarzyna Świerczyńska, 2021. "Is Religion a Determinant of Financial Development?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(3), pages 233-247, August.
    4. Mehmet Asutay & Yumeng Wang & Alija Avdukic, 2022. "Examining the Performance of Islamic and Conventional Stock Indices: A Comparative Analysis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 327-355, June.
    5. Guermazi, Imene, 2020. "The determinants of Sukuk issuance in GCC countries," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 28, pages 25-45.

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    More about this item

    Keywords

    Behavioral finance; Religion; Islamic finance; Ramadan effect;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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