New research at UNH finds Ramadan increases stock returns in the Muslim world

New research from the University of New Hampshire found that stock returns are almost nine times higher in predominately Muslim countries during the holy month of Ramadan compared to other times of the year. The research suggests that Ramadan may positively affect investor psychology and may lead to optimistic beliefs that extend to investment decisions.

"Ramadan is an uplifting holiday for Muslims," said Ahmad Etebari, professor of finance and chair of the UNH Department of Accounting and Finance, who conducted the research. "Muslims seek a closer relationship with Allah, follow a set of prescribed standards of behavior and try to become more responsible members of society.  As a shared experience, Ramadan brings about a greater solidarity among Muslims, which can improve their feelings of self-worth. The holy month produces an upbeat sentiment and greater satisfaction with life, which we believe leads to overconfidence and a greater willingness to accept risk by Muslim investors."

The researchers investigated stock returns during Ramadan for 14 predominantly Muslim countries from 1989 to 2007. The sample includes countries for which stock market index data was available from Morgan Stanley Capital International (MSCI) in Datastream and in which the proportion of the population professing Muslim faith exceeded 50 percent.

Stock returns are almost nine times higher and less volatile than during the rest of the year. The mean annualized return realized by investors during the holy month was 38.09 percent, compared to a rather modest gain of 4.32 percent throughout the rest of the year, the researchers found.

Etebari said the study's results are independent of market liquidity, length of the daily fasting period and some well-known fixed calendar anomalies, notably the Monday, Jan. and Halloween affects. Ramadan is the ninth month of the Muslim lunar calendar, which unlike the Gregorian Western calendar, is based on the motions of the moon.

"You might expect the market to be down during Ramadan because the Muslim community is fasting and activity level might be down," said Etebari. "But even during Ramadan months that coincided with summer, when days are long and fasting can be an ordeal, stock prices were actually up."