The Vanishing Ramadan Effect: A Structural Time-Series Test

Abstract

This study investigates whether religious belief creates stock market return seasonality, focusing on the Muslim holy month “Ramadan�?. We use data from 12 stock markets in countries with a Muslim majority, and employ both deterministic and stochastic seasonality tests. We find there is no Ramadan return seasonality in the majority of these stock markets in neither deterministic nor stochastic tests. However, further analysis of the risk-adjusted returns reveals that the significant drop in market volatility during Ramadan leads to higher risk-adjusted returns.