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The Ramadan effect: A standalone anomaly or just a compensation for low liquidity?

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  • Białkowski, Jędrzej
  • Yaghoubi, Mona

Abstract

The literature provides evidence for the presence of the Ramadan effect – high returns and low volatility – during the ninth month of the Islamic calendar, but no study has scrutinized the hypothesis that the Ramadan effect may be compensation for illiquidity. Our paper aims to fill this gap by investigating the relationship between Ramadan and stock market liquidity in 11 Muslim countries for the period 2009 to 2018. First, we show that the Ramadan effect was present in the examined period. Next, using four stock (il)liquidity measures – Amihud, bid–ask spread, a fraction of zero returns, and turnover – we find that in comparison with the rest of the year, the month of Ramadan is not characterized by lower liquidity. Our results support the idea that the Ramadan effect is a standalone stock market anomaly.

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  • Białkowski, Jędrzej & Yaghoubi, Mona, 2021. "The Ramadan effect: A standalone anomaly or just a compensation for low liquidity?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:beexfi:v:30:y:2021:i:c:s2214635021000241
    DOI: 10.1016/j.jbef.2021.100480
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    2. Das, Kuntal K. & Yaghoubi, Mona, 2023. "Stock liquidity and firm-level political risk," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Ramadan effect; Behavioral finance; Stock liquidity; Religion;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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