The purpose of this paper is to focus on the influence of mood/emotions and religious experience on Islamic stock markets during the Ramadan month.
This study uses stock returns data of two countries – Saudi Arabia and Iran – from January 2008 to September 2014 and the ARMA-GARCH models to study impact of the Ramadan month on the return and volatility of the stock market in these two countries.
The results of this study show some differences in the impact of the Ramadan month on the return and volatility of the stock market in these two countries. While the Ramadan month has a significant positive influence on the mean returns and the volatility of the Saudi market, its influence on the Iranian market is found to be insignificant. Further analysis on the last ten days of the Ramadan month provides a similar result for the Saudi market. However, for the Iranian market, volatility is significantly negatively affected during these last ten days.
Most prior studies have found significant changes in returns during the Ramadan month but a deeper understanding of this stock market anomaly is needed. The results point toward the influence of mood/emotions and religious experience in explaining the existence of the Ramadan anomaly.