The Holy Day Effect and Stock Performance: Evidence from Asian and African Markets

Abstract

Religion play an important role in people’s lives but its impact on stock markets is rarely investigated. Past literature of calendar anomalies mostly established on the Gregorian calendar such as day of the week, turn of the year and holiday effects etc. However, Islamic calendar anomalies are hardly investigated in finance literature. To explore this issue, this study examines the impact of Muslim’s Holy Days (Ashura, Eid Melad-un-Nabi (SAW), Ramadan, Eid-ul-Fitr and Eid-ul-Adha) on daily stock returns of Asian and African Muslim financial markets for a period of 2001 to 2014. Muslim Holy Days are helpful to isolating the effect of faith and decoupling it from possible contaminants. This study has tried to isolate the impact of Muslim Holy days from Gregorian calendar anomalies. First, we check the impact of Holy days on stock returns of Asian and African markets together, then the impact of stock returns of Asian and African markets separately. We divide our data into two sub groups i.e. on the basis of income and population. On the basis of income, we check the impact of Holy days on stock returns of high income, upper middle income and lower income markets separately. Similarly on the basis of population, the impact of Holy days on stock return of high populated and less populated markets. Pooled fixed/variable effect regression is used to investigate the impact of Muslim Holy days on stock return. Hausman test is used to check, which effect either fixed or random is suitable for our data. The study found that Muslim Holy days are effecting stock returns of under study markets differently. This effect of Muslim Holy days on stock returns is not unidirectional as Ramadan, Eid-ul-Fitr and Eid-ul-Adha yield a positive impact on stock return, while Ashoura and Eid Melad-un-Nabi (SAW) are associated with negative one. These findings strengthen our argument that the documented effect is a result of Muslim Holy days, not due to Gregorian calendar anomalies. This study also opposed to traditional financial philosophy (EMH) that distribution of stock return should remain same across all trading days of the year (Fama, 1970, Jaffe, Rozeff & Kinney, 1976 & Westerfield, 1985). Even by isolating and controlling the effect of Muslim Holy days from Gregorian calendar anomalies, the Gregorian calendar effect still exist in all under studies markets. On the basis of these findings, we suggest that investors can formulate investment strategy and select a trading time in order to outperform the market.