‘Ramadan effect’ brings stock market gains, new Canterbury research
Investors in Muslim countries gain higher returns from the share market during Ramadan in a quirk that could be linked to a lift in mood during the religious festival, University of Canterbury (UC) researchers have found.
Dr Mona Yaghoubi (left) and Professor Jedrzej Bialkowski
Together with his co-authors, he found that stock returns in the markets of Muslim countries were significantly higher – up to nine times higher than usual – during the month which Muslims observe with fasting and prayer, than for the rest of the year.
This scenario, which has been confirmed by several other studies, is an anomaly because it can’t be explained by classical financial economics theories that equate higher returns with compensation for risk such as volatility.
“The theory assumes that stock markets offer higher returns in compensation for greater risk taken by investors,” Professor Bialkowski says. “But with a stock market anomaly like this one, the extra returns can’t be explained by risks.”
There are other known stock market anomalies, such as the January effect, when returns are typically higher than other times of the year, and the Halloween effect, when returns in the six months between 1 November and the end of April are higher than the six months between May and the end of October.