Does hajj pilgrimage affect the Islamic investor sentiment?

This paper investigates whether the celebrated Islamic hajj (the pilgrimage) can, through its impact on investors’ sentiment, affect the performance of the stock market. By considering data of Saudi stock market, we estimate four indirect proxies of Islamic investor sentiment. We show that the Islamic investor's sentiment is significantly higher after hajj pilgrimage than that before this religious occasion. The study of the impact of hajj-pilgrimage practice on the Islamic investor sentiment and stock market return reveals important findings that add to Islamic finance researches. First, we find an increasing influence of the Islamic investor's sentiment on the stock market returns after hajj-pilgrimage. Second, we show a significant positive change in Islamic investors’ mood after hajj-pilgrimage and Eid al-Adha holiday which leads to a significant relationship between the change in the Islamic investor's sentiment and stock market return. Third, the Islamic investor's sentiment is significantly affected by its own change, the current stock market return and the change in the stock market return. These findings are consistent with the notion that hajj pilgrimage positively influences the Islamic investor's emotions, as it endorses Muslims to be closer to Allah, which leads to an optimistic sentiment that affects investment decisions.