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Investor sentiment and calendar anomaly effects: A case study of the impact of Ramadan on Islamic Middle Eastern markets

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  • Al-Hajieh, Heitham
  • Redhead, Keith
  • Rodgers, Timothy
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    Abstract

    The holy month of Ramadan is usually a time of celebration and renewal in Muslim countries. This paper examines whether or not this is reflected in positive calendar anomalies effects in Islamic Middle Eastern stock markets during the period 1992-2007. Strong evidence is found of significant and positive calendar effects in respect to the whole period of Ramadan in most countries and it is argued that this can be attributed to the generally positive investor mood, or sentiment. Although Ramadan is a time of celebration for Muslims it also can be a time of uncertainty and this appears to result in the impact of the festival not being uniformly positive throughout Ramadan. It is found that market returns in the first and last days of Ramadan show high levels of statistically significant year-on-year variation. It is argued that this can possibly be attributed to synchronization-related herding effects amplifying the impact of the mood swings associated with this period. The paper also finds that although the overall Ramadan effect is both positive and statistically significant for most countries, the associated gains were only large enough to outweigh transactions costs and provide the basis of a profitable trading strategy in one market.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0275531911000250
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    Bibliographic Info

    Article provided by Elsevier in its journal Research in International Business and Finance.

    Volume (Year): 25 (2011)
    Issue (Month): 3 (September)
    Pages: 345-356

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    Handle: RePEc:eee:riibaf:v:25:y:2011:i:3:p:345-356

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    Web page: http://www.elsevier.com/locate/ribaf

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    Keywords: Investor sentiment Ramadan Market efficiency Calendar anomaly;

    References

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    1. Colm Kearney & Valerio Poti, 2005. "Correlation Dynamics in European Equity Markets," Finance 0507008, EconWPA.
    2. Chiang, Shu-Mei & Lee, Yen-Hsien & Su, Hsin-Mei & Tzou, Yi-Pin, 2010. "Efficiency tests of foreign exchange markets for four Asian Countries," Research in International Business and Finance, Elsevier, vol. 24(3), pages 284-294, September.
    3. Alex Edmans & Diego García & Øyvind Norli, 2007. "Sports Sentiment and Stock Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1967-1998, 08.
    4. Li, Hong & Majerowska, Ewa, 2008. "Testing stock market linkages for Poland and Hungary: A multivariate GARCH approach," Research in International Business and Finance, Elsevier, vol. 22(3), pages 247-266, September.
    5. Wright, William F. & Bower, Gordon H., 1992. "Mood effects on subjective probability assessment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(2), pages 276-291, July.
    6. Elliott, Jan Walter & Echols, Michael E, 1976. "Market Segmentation, Speculative Behavior, and the Term Structure of Interest Rates," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 40-49, February.
    7. Fifield, Suzanne G.M. & Jetty, Juliana, 2008. "Further evidence on the efficiency of the Chinese stock markets: A note," Research in International Business and Finance, Elsevier, vol. 22(3), pages 351-361, September.
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    Cited by:
    1. Białkowski, Jędrzej & Bohl, Martin T. & Kaufmann, Philipp & Wisniewski, Tomasz P., 2013. "Do mutual fund managers exploit the Ramadan anomaly? Evidence from Turkey," Emerging Markets Review, Elsevier, vol. 15(C), pages 211-232.

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