Ramdan Is The Time Of Great Stock Returns

Pulse

oi-Suparna Chakaraborthy

By Suparna Chakaraborthy

Wednesday, August 11, 2010, 15:57

According to a study conducted by the researchers of University of New Hampshire, during the holy month of Ramadan, stock returns are almost nine times higher in predominately Muslim countries than during other times of the year.

This indicates that Ramadan has a positive impact on the investor psychology and leads to optimistic beliefs that extend to investment decisions.

Ahmad Etebari, professor of finance and chair of the UNH Department of Accounting and Finance revealed that during the Ramdan month the annualized return earned by investors is 38.09 percent, compared to a gain of 4.32 percent throughout the rest of the year.

Ramdan is observed by more than 1.5 billion Muslims all over the World and is strongly followed by 14 predominant Muslin countries over the years 1989-2007: Oman, Turkey, Kuwait, United Arab Emirates, Qatar, Pakistan, Jordan, Egypt, Morocco, Tunisia, Malaysia, Bahrain, Indonesia, and Saudi Arabia. Etebari and his co-researchers investigated stock returns during Ramadan for 14 predominantly Muslim countries.

“We believe that the Ramadan effect can best be explained by a change in investor psychology. Ramadan is a religious month that affects almost every aspect of Muslims" lives. Besides fasting and prayers, Ramadan promotes heightened social awareness and a closer relationship with Allah and with other fellow Muslims around the world," researchers said.

“As a fundamental shared experience, Ramadan brings about a sense of solidarity among Muslims, enhances their satisfaction with life and encourages optimistic beliefs. This optimism affects investor sentiment and decisions leading to the price run-ups we found," they added.

Researchers have also checked other reasons which could have affected the stock. They checked whether the effect was due to market liquidity, length of the daily fasting period, fixed calendar anomalies etc but nothing seem to give an answer.

“Investors seeking fast profits in the Muslim world should try to profit from the fast, buying shares prior to the start of Ramadan and selling them at the end of the holy month or preferably immediately after Eid al-Fitr. Of course, there are transactions costs that one would need to take into account, but any such costs would appear to pale in comparison to the observed returns," the researchers said.

“Alternatively, investors could embark on a more passive strategy by delaying their sales until the end of the holy month or by accelerating the timing of purchases ahead of it," they added.