SEASONALITY EFFECT AND MARKET EFFICIENCY ANOMALIES IN THE SAUDI STOCK MARKET

Abstract

This study has examined the impact of Ramadan, Hajj, and Ashoura festivals on the Tadawul All-Share Index (TASI) from 1998-2018. It is widely accepted that seasonal effects, such as those caused by major religious ceremonies have a significant impact on the returns and volatility of financial markets. This research has established that there are no significant changes in returns of the TASI during Ramadan, Hajj, and Ashoura when compared to other periods of the year. There is also no significant differences in volatility in TASI during Ramadan, Ashoura, and Hajj when compared to other times of the year. Finally, there is no significant changes in volumes during Ashoura and Hajj when compared to other periods of the year. However, the research has shown that there are significant changes in volumes during Ramadan when compared to other periods of the year.
Keywords: investment, volatility, returns, portfolio

 
 
 
 
 
 
 
 
 
 
Table of Contents
Abstract 3
Chapter 1: Introduction. 8
Importance of This Research. 14
Chapter 2: Literature Review.. 15
Anomalies. 15
Ramadan. 16
Ashoura. 17
Hajj 18
Religious Calendar and Financial Market 19
Ramadhan, Ashoura, and Hajj Effects on Investors. 20
Investments in Islam.. 24
Investment Strategies During Ramadhan, Ashoura, and Hajj Festivals. 29
Hypothesis. 32
Chapter 3: Data and Methodology. 33
Ramadan, Ashoura, Hajj Effects on Return. 40
Volume. 43
Chapter 4: Findings. 48
Returns of the TASI During Ramadan, Hajj, and Ashoura. 48
The Volatility of the TASI During Ramadan, Hajj, and Ashoura. 50
Changes in Volume During Ramadan, Hajj, and Ashoura. 54
Comparison of my Findings With Those of Similar Studies. 57
Chapter 5: Recommendation and Conclusion. 83
Recommendation. 83
Conclusion. 87
Reference List 90

 
 
 
 
 
 
 
 
 
 
 
 
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List of Figures
Figure 1Returns of TASI From 1998 to 2017. 36
Figure 2 Correlogram of Return Squared. 37
Figure 3 Change in Volume of TASI. 39
Figure 4 Correlogram of Change in Volume Squared. 40
Figure 5 Estimate Equation for Ramadan Ashoura and Hajj (Returns) 41
Figure 6 Solution for Ramadan, Ashoura, Hajj Returns. 42
Figure 7 Estimate Equation Ramada, Ashoura, Hajj (Volume) 44
Figure 8 Solution for Ramadan, Ashoura, Hajj (Volume) 45
Figure 9 Correlogram of Returns. 46
Figure 10 Correlogram of Volume. 47

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Seasonality Effect and Market Efficiency Anomalies in the Saudi Stock Market

Chapter 1: Introduction

Both financial and non-financial activities have a significant effect on the performance of the stock market. In any calendar year, there are always religious-related and non-religious related anomalies in the financial market. Non-religious related anomalies include the January effect and the weekend effect, while the religious ones include the Good Friday effects, Christmas effect, Ramadan effect, and the less popular Ashoura effect (Bialkowski, Etebari, & Wisneiwski, 2012). One unique feature of the Ramadan effect is that besides affecting the moving calendar due to abnormal returns, it has a significant impact on investors’ moods, which ultimately results in significant effects in the market. In particular, there are effects on investors’ health due to the prolonged fasting period, as well as in their social empathy and feelings caused by the religious activities during Holy days. Additionally, Ramadan makes most worshippers become inclined to do good deeds, including not defaulting on their payments (Bialkowski et al., 2012). Unlike Ramadan, which is associated with good feelings, because the anticipation of blessings among believers, Ashoura is associated with negative valence that is caused by the worshippers’ anger and sadness. This paper explores whether Ramadan, Ashoura, and Hajj festivals have any impact on the stock market returns and trading volumes of the Saudi stock market.
According to Bialkowski et al. (2012), investors’ moods and emotions affect their judgments, decision making, preference for risks and returns, and their responses for uncertainties in the market. In the same breath, Loewenstein et al.’s (2001) theory, ‘risk-as-feeling,’ espouses that uncertainties and risks influence individuals’ decision-making process. The risk-a-feeling theory suggests that cognitive evaluations and emotional reactions influence a person’s reasoning. However, when there is a divergence between cognitive evaluations and emotional reactions, the latter usually supersede behavior and influence a person’s decisions. Based on this theory, Al-Khazli et al. (2017) opine that people with good moods are usually more optimistic than those who are moody. In this regard, investors’ emotional state can affect the market prices and returns on investments, which can lead to market anomalies.
Another theory that supports the idea that religious activities can have an impact on market performance is that of behavioral finance. Al-Kazali el al. (2017), note that investors’ financial decisions are not always rational, and are influenced by among other things how they feel. Similarly, Nofsinger (2005) says that social mood influences investors’ decisions, and business activities. Since the movements of stock markets are influenced by actual business performance and investors’ behaviors, then movements in the financial markets can be viewed as a direct index of social moods (Al-Kazali, Bouri, & Zoubi, 2017). Hilary and Hui (2009) note that different social environment, behaviors, and activities, such as religion and sports affect investors decisions, and subsequently influence the performance of financial markets.
Al-Kazali, Bouri, and Zoubi (2017) opine that religion has for a long time affected and influenced the economic performance of a region. For example, the development of the modern capitalistic economic model is associated with the emergence of Protestant ethics (Weber, 1905). Religion has also been found to affect social interactions, individuals as well as corporations’ social norms on investments (Sonjaya & Wahyudi, 2016). Likewise, Al-Kazali et al. (2017) assert that religious beliefs influence how investors select their portfolios in Saudi Arabia.
Although various research studies have examined the effects of religious beliefs on stock market performance, few have focused on Saudi Arabia alone (Bialkowski et al., 2012; Hilary & Hui, 2009). Furthermore, there has been a contradiction in the results findings, specifically on the effects of Ramadan on the performance of stock market. The research findings on Ramadan effect have been contradictory, some findings have established that it does not affect the performance of the stock market, while others have concluded that it has some effects.
In financial markets, anomalies refer to the tendency of stocks to deviate from the notion of an efficient market. In this case, the movements of the stocks do not reflect all the available information in the market. Ramadan, Hajj, and Ashoura are essential Muslim Holy days that are observed by a majority of Muslim populations. The psychological and physical effects that investors experience during this period have a significant impact on how they invest. In particular, these religious ceremonies affect investors’ level of optimism, appetite to take risks, and desire to invest.
Ramadan is one of the most sacred festivals among Muslims, and it happens in the 9th month of the Hijriyah. The celebration of Ramadan entails abstinence from any form of pleasures such as drinking, eating, and sexual satisfaction during the fast hours. According to the Quran 51:21; 2:183, Ramadan is a time of reflection, worship, giving, and self-reformation. Therefore, Ramadan fosters cooperation among Muslims in the world through enhanced social cooperation and worshippers’ closer relationship to Allah. Beit-Hallahmi and Argyle (1997) use the positive psychology concept to establish that religion provides important social support that makes believers more optimistic and happy. Importantly, the enhanced enthusiasm among the faithful’s results in a greater sense of self-identity and satisfaction among Muslims in the world.
On the tenth day of the first Hijri month of Muharram, there is always the Ashoura festival. This ceremony is celebrated by both Sunni and Shia Muslims, albeit with different reasons. Among the Shia Muslims, Ashoura marks the martyrdom of Hussein ibn Ali and 72 Husayn’s followers at the Battle of Karbala on Ashoura (Schwartz, 2015). Hussein ibn Ali was the grandson of Prophet Mohamad. Among the Sunni’s, Ashoura is the commemoration of the day when Moses liberated Israelites from Pharaoh and his army. Therefore, Sunni’s fast on this day to follow the teaching of prophet Mohamad. Despite the Ramadan and Ashoura being essential and highly celebrated holy occasions for Muslims, they vary on how they affect investors’ attitudes. The Ramadan festival is characterized by positive valence since Muslim faithful’s anticipate blessings in the month due to the forgiveness of their past sins. On the converse, Ashoura is characterized by negative valence due to the sadness of mourning.
Among Islamic countries, such as Saudi Arabia, religious practices have three distinct characteristics. Firstly, the Muslim Hijri calendar regularly differs from the Gregorian calendar since it is 11 days shorter. Therefore, although the Islamic holidays may appear to be happening at the same time in the Hijri calendar, they are always shifting by many days in the Gregorian calendar. Just consider, the 11-day difference per year is equivalent to 220 days in 20 years, which is about seven months and ten days difference. Noteworthy, most societies have their calendar due to their religion and cultural practices. For example, Chinese follow the lunisolar calendar, Jews follow the Hebrew calendar, Christians follow the Gregorian calendar, and Indians follow the Saka calendar (Al-Kazali, Bouri, & Zoubi, 2017).
Secondly, Muslim countries do not have a similar method of determining the start of lunar Hijri months. Each Muslim country uses an independent method of ascertaining the beginning of a lunar month ranging from eyewitness observations of the new crescent to the use of advanced astronomical tools (Al-Ississ, 2010). Even among countries that use astronomical instruments, various parameters are used to calculate the lunar positions, which results in varying dates for the start and end of Islamic Holy days in the Hijri year across Muslim countries.
Thirdly, there are different degrees of worship intensity within the Ramadan month, which affect investors’ emotions differently (Al-Ississ, 2010). During Ramadan, the worship intensity varies depending on the religious significance of each event. Ramadan consists of three distinct parts that are ten days each but have different characteristics, motives, intensity of worship, and promised reward (Ibn Khuzaymah, 3). In the first part of Ramadan, worshippers seek God’s Mercy. In the second part, they ask for His forgiveness. In the third part, they pray for delivery from hellfire (Ibn Khuzaymah, 3:191). The physical strain, which is usually experienced at the start of the fasting, before the worshippers acclimatize to their new routines, affects their behaviors. Additionally, the varying worship intensities, motive, and characteristics of each part of Ramadan have different psychological effects on the worshippers.
Besides the prayer and fasting during the Ramadan period, many Muslims honor the ceremony by reducing the hours that they work per day, which enables them to observe their religious duties. Bialkowski et al. (2012) note that the performance of religious duties by the worshippers makes them intensify their social interactions and become more optimistic. Nonetheless, the reduced working hours also results in a reduction in their productivity.
Conceptually, the effects of Ramadan on the performance of financial markets depends on the psychological status of the investor and also his/her emotions. Since Ramadan affects both the spiritual and social interactions of Muslims, it inevitably changes their psychology, in turn influences their investment decisions. In the Ramadan period, Muslims are usually more social and religious, because they expect to be rewarded in the double portion for their good deeds. Lucey and Dowling (2005), assert that the social and religious orientation during Ramadan create positive moods among the worshippers, in turn affecting their willingness to take risks and invest. Similarly, Seyyed, Abraham, and Al-Hajji (2005) opine that there is a significant decline in volatility during the Ramadan period, which is attributed to investors’ positive sentiments. On the contrary, Shah and Ahmed (2014) dispute the common allegation that Muslims pay so much attention towards faith that they fail to participate in economic activities during periods of religious festivals, which results in market volatility when they are celebrating major holidays.
Due to the increased globalization, there is a view among some researchers that the seasonal effects attributable to religious ceremonies will in the future have minimal effects on financial markets. For example, Akhter et al. (2015) opine that arbitrageurs enable the market to achieve efficiency, which reduces the cases of volatility due to the Ramadan effect. Similarly, Bialkowski et al. (2012) opine that the increased participation of foreign investors in Islamic markets will reduce the rate of volatility due to Islamic Holy days. Given that most foreign investors operate as institutions and legal persons, they do no break during religious ceremonies. Furthermore, some are not owned or run by Muslim faithful’s, and would, therefore, operate even during these days.
Research established that fasting period and prayer promote both physical and psychological well-being of individuals, which results in a reduction in anxiety among the worshippers (Saleh et al., 2005). According to Rosen and Wu (2004), the worshippers’ good health during the Ramadan period, due to their reduced intake of high-calorie foods, can enhance their willingness to take risks. Similarly, Bialkowski et al. (2012) note that fasting causes a person to be healthy and makes him/her have a positive mood, which makes the individual to increase his/her risk appetite.
Although the Ramadan effect is associated with positive returns in some countries, Bahrain and Saudi Arabia consistently show negative returns during this period (Sonjaya & Wahyudi, 2016). The Seyyed, Abraham, and Al-Hajji (2005), examination of the Ramadan effect on the Saudi Arabian stock market established that it leads to a significant decrease in volatility and trading activity. Further, there is always a difference in the manner in which the Ramadan effect presents itself. In some countries, there might be an increase in returns in their financial markets, whereas in others, there may be a decrease. In some cases, the changes, either increase or decrease, may not be significant. A report from Aljazira Capital (2014), concludes that there is a substantial and positive relationship between Saudi Arabia stock Exchange market movements and Ramadan. In particular, it was observed that a high number of individuals spent time in spiritual activities and rituals, and they changed their business hours to accommodate the requirements of Ramadan. Aljazira Capital (2014) notes that just before Ramadan, most individuals spend a lot in shopping for the upcoming festival. These individuals usually exit the market leading to a fall in indices. During Ramadan, the trade volume is low since fewer people invest in the stock market. There is usually a rally of the indices and market dynamics after Ramadan due to increased participation in the market.
In this paper, I will examine whether religious practices and specifically Ramadan, Hajj, and Ashoura festivals have an effect on the Saudi Arabia financial market.  The existing body of literature indicates that religion indeed affects economic performance by influencing the investment decisions, and decision-making process of person’s and institutions (Al-Kazali et al., 2017). This research aims at expanding the existing knowledge by examining Ramadan, Hajj, and Ashoura effects on Saudi’s stock market.

Importance of This Research

This paper complements other research studies that have examined the effects of Ramadan, Ashoura, and Hajj festivals on the performance of financial markets in Saudi Arabia. Interestingly, although Muslims strongly condemn speculation and gambling (maysir), foreign non-Muslim investors consider speculation as a form of risk, which earns a reward. Therefore, foreign investors may benefit from the information about the financial market trends in Saudi Arabia, which will be established from this study. This research uses the GARCH-based model to capture many salient features from data such as the effects of days of the week and the predictability associated with lagged returns. Consequently, the three different distributions of the GARCH model (normal, student-t, and GED) are examined, and the one that is most appropriate is selected. This tactic helps in avoiding bias estimates of return and volatility coefficient, which can result in erroneous investment conclusions. The remainder of the paper is organized in the following manner: Chapter 2 offers a review of relevant literature; Chapter 3 describes the data and methodology; Chapter 4 discusses the findings of the research; Chapter 5 gives the conclusion and appropriate recommendations based on the research findings.

Chapter 2: Literature Review

Anomalies

Anomalies occur when stocks deviate from the notions of an efficient market, which makes investors earn abnormal returns (Stulz & Williamson, 2003). There are two groups of anomalies in financial markets, religious related and non-religious related. The religiously related anomalies include the Christmas and Good Friday effects, the Easter Week holiday effect, the Ramadan effect, and the Jewish High Holiday effects. Non-religious-related anomalies include the January effect, the Weekend effect, and the Wednesday effect (Sonjaya & Wahyudi, 2016, p. 55). As for Ramadan effect, besides the significant impacts of the moving calendar that result in abnormal returns, a combination of factors that are not in other religious-calendar anomalies affect returns during this period. According to Bialkowski et al. (2012), investors’ emotions and psychological status influence their decision making, risk appetite, and response to uncertainties.
From research done on the effects of Christmas and Good Friday on financial markets, Cadsby and Ratner (1992) observed that stock returns increase just before the start of this public holiday. Similarly, a research conducted by Frieder and Subrahmanyam (2004) on the effect of the Jewish High Holy days established that stocks are significantly up during Rosh HaShanah and prior two days and significantly low on Yom Kippur and subsequent days. Noteworthy, Frieder and Subrahmanyam (2004) associate the low returns with the sentiments of the Jewish investors and their trade during holidays. Aljazira Capital (2014, p. 4) also notes that in Saudi Arabia, indices fall in the period just before Ramadan since most investors exit the market. The indices remain low during the Ramadan period, and they rise steadily after Ramadan.

Ramadan

            Ramadan occurs during the ninth month of the Muslim Hijri calendar. This important holiday is observed by more than 1.5 billion Sunni and Shi’a Muslims around the world (Bialkwoski et al., 2012). During the Ramadan period, Muslims must refrain from drinking, eating or sensual pleasures. In principle, Muslims are expected to commit most of their time to religious practices and rituals. Therefore, they mostly fast from dawn until sunset. Muslims also put more emphasis on prayer, charity, and reciting the Quran during this period, since they believe they will receive blessings for their good deeds. One major characteristic of Ramadan is the shared experience among the worshippers during the prayer and fasting period, which is essential for enhancing social relations. Therefore, when viewed from a positive psychology perspective, Ramadan provides crucial social support and encourages optimistic beliefs that are essential in enhancing believers’ happiness (Beit-Hallahmi & Argyle, 1997). Importantly, these optimistic beliefs can influence the worshippers’ investment decisions and risk appetite.

Ashoura

The Ashoura festival occurs on every tenth day of the first Hijri month of Muharram (Schwartz, 2015). Both the Sunni and Shi’a Muslims celebrate this holiday. Among the Sunnis’ Ashoura acts as the commemoration of the day of Israelites liberation from Pharaoh and his army. For the Shi’a, they mourn the death of Hussein Ibn Ali at the Battle of Karbala on Ashoura. Hussein was the grandson of Prophet Mohamad.
Although Ramadan and Ashoura are essential Muslim holidays’, they have a significant difference in valence. In Ramadan, individuals have positive valence since they anticipate blessings and forgiveness. Whereas in Ashoura, individuals have a sad feeling since they commemorate difficult times that Islam has experience. In this case, Sunni’s celebrate the day Israelites were liberated from Pharaoh and his army, and the Shia, mourn the death of Hussein ibn Ali. Accordingly, Ramadhan and Ashoura are expected to have different psychological effects on their members, which makes these holidays to also have varying effects on the performance of the financial markets. Noteworthy, although the Ashoura festival is expected to result in some effect in the financial market, the unique nature of the counties can affect how their local financial markets behave. For example, Ali et al. (2017), established that there is no impact on stock returns in the Holy Day of Ashoura in Asian markets with and without control of the Gregorian anomalies. This effect is mainly due to other financial factors that affect the financial market of countries in this region.

Hajj

Hajj is an annual Islamic pilgrimage held in Mecca, Saudi Arabia. Mecca is considered as one of the holiest cities for Muslims. Hajj is a mandatory duty that must be conducted at least once in a lifetime by a financially and physically capable person. It is also the second largest annual festival in the Muslim world. Attendees of this pilgrimage are expected to support their families and themselves during the Hajj period, which usually occurs from the 8th to the 12th date of the Dhu-al-Hijjah in the Hijri calendar. Among the Muslim faithful’s, Hajj demonstrates their submission to Allah.
During Hajj, the pilgrims’ processions converge in Mecca where they perform a series of rituals. In particular, each worshipper walks seven times around Kabaa, takes a drink from Zamzam well, performs symbolic stoning of the devil by throwing stones at three pillars. After this step, the worshippers run several times between the hills of Safa and Marwah (Al-Islam.org, 2018). They also go to Mount Arafat and spend their night at the plain of Muzdalifa. After conducting these rites, the pilgrims shave their heads, make an animal sacrifice. They finally celebrate Eid al-Adha for three days. The sacrifice of animals plays an important role in commemorating the sacrifice made by Prophet Ibrahim, which is called ‘Sunnat-e-Ibrahim” (Al-Islam.org, 2018).
One major similarity between Ramadan, Ashoura, and Hajj festivals is that Muslims allocate most of their time in spiritual development, and slow down their investment activities (Al-Islam.org, 2018). Additionally, these ceremonies lead to an emergence of new short-term business opportunities, especially in the consumer industry, which attracts more investors. The new investment opportunities result in significant cash outflow from the stock market. The reduced participation in the stock market by most investors coupled with some cash outflows from the market results in low returns and volatility in financial markets. Therefore, the herding behavior during both the Ramadan, Ashoura, and Hajj festivals has been found to result in stocks having (Shah, Qureshi, & Aslam, 2017, p. 58).

Religious Calendar and Financial Market

Islamic Holy days follow the lunar Islamic (Hijri) calendar, and not the solar Gregorian calendar, which is used in most business operations. Since the months of the Hijri calendar are always about 29.53 days, this calendar is approximately 11 days shorter than the Gregorian one. As a result, although the Muslim ceremonies such as Ramadan and Ashoura occur in the same period in the Hijri calendar, they are always shifting in the Gregorian one.
In the Hijri calendar, which uses the lunar system, the observations of the moon indicate the start of a new month. Usually, if the new moon occurs before sunset, the Ramadhan holiday starts on the following day (Bialkwoski et al., 2012). The observation of another new moon also marks the end of Ramadan. The main challenge with using this method is that the visibility of the moon and sunset time is dependent on the date and geographical location of the observer. If the astronomical calculations used to determine the start and end of Ramadan, Ashoura, or Hajj are different, there are inevitably variations on when these ceremonies start and end among Muslim-majority countries. There are also challenges brought by the use of different parameters to calculate the start of the Islamic holidays. From a religious perspective, it is not unique for Muslims to use their faith-based calendar instead of just observing the patterns of the moon (Bialkwoski et al. 2012). For example, Indians follow the Saka calendar, Jews use the Hebrew calendar, the Chinese use the lunar calendar, and Christians follow the Gregorian calendar (Al-Kazali et al., 2017).

Ramadhan, Ashoura, and Hajj Effects on Investors

Ramadan has been found to result in the development of positive moods among investors, which makes them more willing to take risks and invest. The increased optimism among investors is mostly shown through a significant increase in stock returns during Ramadan (Al-Kahazali, 2014; Bialkowski et al., 2012). Saleh et al. (2005) opine that fasting enhances investors’ health, which makes them more willing to participate in risky trade. Bialkowski et al. (2012) assert that the communal worship promotes optimism, herding behavior, and enhances social interactions. Concerning herding behavior, the social norm theory suggests that people are likely to follow the activities, norms, and beliefs of their community’s members (Sonjaya & Wahyudi). Therefore, the religious events of the entire community can influence the behavior of individual investors, which can in turn affect their investment patterns.
Normally, Ramadan plays a significant role in influencing investors’ willingness to take risks (Hilary & Hui, 2009). The fasting, refraining from drinking, smoking, and sexual behavior, and engaging in religious practices is done by all Muslims in the world from dawn until sunset (Al-Khazali, 2014). The fasting makes individuals become healthier and reduces their anxiety level. In support, Rosen and Wu (2004) argue that persons who are healthy are usually more willing to participate in risky portfolios. Additionally, the holding of communal prayers has been found to enhance social interactions and optimism during Ramadan (Bialkowski et al., 2012). The heightened social interactions during Ramadan makes investors more optimistic and less risk-averse. Sonjaya and Wahyudi (2016, p. 58) note that these social interactions result in a herding behavior, which makes other investors in the market follow this trend.
Studies on the performance of stock markets in Islamic countries during the Islamic year have given mixed responses (Seyyed et al., 2015; Al-Ississ, 2012; Bialkowski et al., 2012, Aljazira Capital, 2014). These studies investigated whether the Islamic calendar led to seasonality effects and market efficiency anomalies in Islamic countries. Specifically, some research findings indicate higher stock returns and volatility during Ramadan whereas other others reported that there were no significant market changes. The variations in the research findings were also similar for Ashoura and Hajj, with researchers finding different results.
Although studies conducted on the Ramadan effect on the financial market give different findings, overall, it is agreed that the impact of Ramadan is largely due to investors’ psychological and emotional state. Bialkwoski et al. (2012) and Al-Khazali (2014) espouse that stock returns are usually higher during the Ramadan period because of investors’ optimism. Similarly, Seyyed, Abraham, and Al-Hajji (2005) note that there is a decline in volatility during the Ramadan period. On the contrary, (Sonjaya and Wahyudi, 2016, p. 57) observe that Ramadan effect does not result in the rise in stock market performance in some Muslim majority countries, specifically in Bahrain and Saudi Arabia. These two countries experience negative returns during this period. Aljazira Capital (2014) also notes that there is a fall in Saudi Arabia indices in the stock market during the Ramadan period. A study by Ariss, (2001) to determine the Ramadan effect established that stocks are less volatile during this period, and they have high returns on the last day due to the economic slowdown during Ramadan.
In a study of the Pakistan stock market, Husain (1998) observed that volatility levels are low during the Ramadan. However, the researcher noted that the market’s average returns are not significantly different during Ramadan when compared with the rest of the year. In the analysis of the Saudi Arabia stock market for the period from 1998 to 2000, Seyyed et al. (2005) did not establish any significant changes in the stock returns during Ramadan, but they observed a decrease in stock volatility. Using data from 1992 to 2007 of 8 Middle Eastern countries, Al-Hajieh et al. (2011) established that 6 out of 8 nations had abnormal positive returns during Ramadan. Similarly, results of the research done by Carl and Azzzudin (2010) on the Malaysian stock market from 2000 to 2003 support the existence of the Eid al-Fitri effect. In a study done by Bialkoswki et al. (2012) on the stock returns of 14 Muslim countries from 1989 to 2007, it was established that stock returns are significantly higher and less volatile during Ramadan than in the rest of the year. Recently, Aljazira Capital (2014) established that trade volumes are low and the market is less volatile in Saudi Arabia during Ramadan since fewer people invest in the finance market at this time.
An examination of the Ramadan and Ashoura effect by Al-Ississ (2010) on the daily returns and trading volumes of 17 Muslim countries from 1988 to 2009 established there is a significant decline in trading volume and positive returns during the five holy days of Ramadan. The researchers also noted that there is a significant drop in trade volumes, returns, and volatility during Ashoura festival. Al-Ississ (2010) also noted that there are substantial negative returns during the day of Ashoura. The investors’ engagement in religious activities and psychological and emotional wellbeing cause the different performances of the financial market. An investigation of the Ramadan effect on the security returns of mutual funds in Turkey’s Istanbul Stock Exchange by Bialkowski et al. (2013) showed that they had high returns during Ramadan. Similarly, tests of the seasonality of the Tehran Stock Exchange by Ramezani et al. (2013) indicated that there are positive stock returns during Ramadan.
Research by Mustafa (2011) on the Ramadan effect on the Pakistan financial market from 1999 to 2010 indicated that there are significant high stock returns and market risks during Ramadhan than the rest of the year. An examination of the Ramadan effect on 15 Muslim countries from 1989 to 2012 by Al-Khazali (2014) showed that from a wealth perspective, the stock markets being investigated did not outperform during Ramadan. In the examination of the Islamic calendar anomalies on Pakistani firms from 1995 to 2011, Halari et al. (2015) concluded there was minimal seasonal anomaly on average returns. Nonetheless, the researchers noted that there was a change in volatility returns, which made them conclude that investors can formulate strategies to outperform risk-adjusted basis.
The Hajj effect on the stock market causes a slowdown in market activity. Shaista and Wassiuzzaman (2017) examined the Hajj influence on the Saudi stock market by focusing on the records of the Tadawul All-Shares Index (TASI) among other indices that track the performance of stocks for a selected timeframe. The period that was examined was Hajj, a time when Muslim believers from various parts of the world travel to the region for the pilgrimage. Notably, this period is usually characterized by the volatility of stock prices throughout the region. The study’s financial statistics model proved that the Hajj event in itself does not have an impact on the mean return values observed on the indices participating in the stock exchange. However, it demonstrated that this specific religious event promotes a surge in the volatility rates observed in the region during for all the indices that took part in the test. Similarly, a study commissioned in Karachi finance market found evidence of a relationship between volatility in stock prices and monthly patterns occasioned by religion (Halari, Power & Helliar 2015).
Furthermore, the Hajj pilgrimage is a compulsory religious duty that each believer must perform, at least once in their lifetime if they are financially and physically able. The event requires a person to be capable of supporting his/her dependents even when on the pilgrimage journey (Henderson 2011). The requirement for one to be both financially and physically healthy promotes volatility as a person limits his or her spending while on the trip so that he/ she can fulfill this obligation. The pilgrimage, therefore, limits the economic participation of the religious tourists who perform the Hajj pilgrimage. Overall, the volatility of the Saudi Arabia stock market prices is promoted by the tendency of people in the Saudi community to spend little, resulting in high volatility of the shares when their prices drop (Abbes & Abdelhédi-Zouch 2015, 141). This effect is also noted to considerably reduce after the Hajj pilgrimage.
Since financial activities are global, it is essential to consider the effects of the increased globalization and integration of financial, markets and their impact on Ramadan, Hajj, and Ashoura effects. In particular, there has now been an increase in foreign investors that are participating in financial markets in Muslim-majority countries, which has the effect of diluting the impacts of Muslims’ reduced participation in the financial market when they are celebrating religious ceremonies. Underscoring this view is Akhter et al. (2015) conclusion that there is usually a negative Zul-Hijjah effect due to the low trading market. The researchers, however, noted that arbitrageurs enable the market to achieve efficiency, which reduces market volatility. A similar view was established on the analysis of Ramadan effect, where Bialkwoski et al. (2012) opine that the increased participation of foreign investors in Islam majority countries will reduce the cases of volatility and the effects of Islam Holy days on returns and volumes traded.

Investments in Islam

Mitchell, Rafi, Severe, and Kappen (2014, p. 108) assert that among Muslims, religious principles act as the main guidelines of how individuals invest and not the attractiveness of returns. Under the Islamic Sharia law, for example, money cannot be used to create more money through usury. Accordingly, money and other cash equivalents are strictly viewed as a store of value, and investors cannot earn interest on money they lend or borrowers be required to pay interest on borrowed cash (El Gamal, 2000). Additionally, Mitchell et al. (2014) note that Islamic principles mandate that financial activities should not have any form of ambiguity (ghara) or speculation and gambling (maysir). Conversely, conventional finance considers ambiguity as a form of risk, and investors earn a reward for engaging in the risky trade. Based on these guidelines, any form of speculative activities in finance such as futures, warrant, short-selling, and options are prohibited in Islam (Mitchell et al., 2014). In this regard, investors may not necessarily be attracted to invest in stocks during the Ramadan since it is against Islamic faith to benefit from speculative income.
According to El Gamal (2000) Islamic finance prohibits individuals from investing in non-productive and potentially harmful activities such as trade in alcohol, adult entertainment, casinos, and firearms. The underlying policy in Islamic finance is one based on profit and loss sharing. In this case, the suppliers of funds become investors and not creditors, and debtors becomes just entrepreneurs. In this structure, the entrepreneurs and investors share the business risks and returns. Mitchell et al. (2014) opine that in contemporary business settings, creditors do not share the business risk with their debtors. Instead, they are entitled to a fixed payment (interest) irrespective of the borrower’s business performance. Despite the somewhat lenient credit policy of Islam, Muslim investors also consider the type of business that they are financing. In particular, the enterprise must be one that is acceptable according to Islamic teachings. Similarly, Muslims are required to invest in indices in the financial market that are Sharia-compliant (El Gamal, 2000).
In many instances, the people living in a given locale practice a culture that is mainly guided by their religious beliefs. The holidays brought about by religion have an impact on various aspects of a country’s economy by presenting a seasonality effect on the stock markets – the Saudi Stock market and those in the entire UAE region being no exception (Al-Ississ 2010, p. 462). Religion in this area also influences the behavior of people and their spending habits, thus affecting the economy as it is witnessed in Saudi. For instance, the stock market in this region depicts a seasonality that fluctuates depending on the different religious events, such as Ashoura, Ramadan, and the Hajj, while the weekends also bring about a specific fluctuation trend in the prices of stocks. However, the literature highlighting the impact that religion contributes to the fluctuation pattern as is portrayed in the Saudi Stock Exchange Market is limited. Even so, it is evident that religious events and seasons contribute significantly to the seasonality trends that the market experiences as religion plays a significant role in the cultural, social, and economic trends in many societies (Al-Kazali et al., 2017). Notably, the Muslim religious beliefs depict money as a religious contaminant (Bley & Saad 2010). The impact of faith and religion on the Saudi Stock Markets is significant, and there exists a significant gap in the inadequacy of literature relating these two aspects.
When considering the Ramadan effect, it is important to note that the Saudi calendar is grounded on the Hijri calendar which brings about a seasonality in the economy of the area during Ramadan as well as Eid-El-Adha and Eid-El-Fitr (Seyyed, Abraham & Al-Hajji, 2005). Ramadan, in particular, which is celebrated in the ninth month of the Hijri calendar, is marked by a decline in the participation of people in their businesses, leading to a go-slow in the economic activities during this Holy month. The month is culminated with a big celebration known as the Eid-El-Fitr, where most people spend significantly in the purchase of new outfits and house decorations for the celebration. This influx causes many traders to increase the prices of their commodities, especially if they tend to be in high demand during the said period. This seasonality, which is characterized by a go-slow in business and trading activities, to a great extent eventually impacts the trading trends in the financial and stock markets. Usually, the Ramadan effects normalize after the end of the celebrations. Since almost all members of the community observe the Holy month of Ramadan, Ramadan affects the trading trends through the demand and supply forces and the overall trading and purchasing trends of the populace (Abbes & Abdelhédi 2015). In this manner, the lunar calendar that is observed by the Saudi community- because they are Muslims- promotes seasonality in the economy of the region.
According to Jadwa Investment Report (2012, p.1), the religious inclinations of the Saudi community affect the companies that have been listed in the stock exchange indices since they are the most affected by the impacts of the forces of supply and demand during Ramadan. The impact is of these forces is often reflected on the share prices as the resultant high volatility of returns is a burden that should be shared by all stakeholders. Also, Ramadan happens during the hottest months of the year in the Northern hemisphere, further intensifying the slow activity of businesses. The hot days make it impossible for companies to continue running at their optimal productivity rates worsening the go-slow that the Saudi economy experiences during this period, before it picks up at the end of the Eid-El-Fitr celebrations (Wasiuzzaman & Al-Musehel 2017).
When considering the Sunday and Weekend effects on the Saudi Stock Market, this study analyses the generalized theory of the days-of-the-week effect. Indeed, markets in predominantly Muslim communities face challenges as practices such as speculation, and short selling are frowned upon (Hakim & Rashidian 2002, p.3). In the financial markets, this phenomenon, which is mostly observed in the Muslim economies is taken to be a puzzling anomaly of seasonality. An analysis of the Tadawul All-Shares Index (TASI) records demonstrates that stock returns follow different processes for the weekdays and the weekends and particularly on Sundays. Furthermore, a dismal performance in the stock market sets out a ripple effect on the world oil prices (Jouini, 2013). The weekend effects, particularly on Sundays, contribute to the seasonality trend on the mean daily returns of the stock exchange (Ulussever & Kar, 2011). Since the highest stock prices are seen on the last day before closing the trading week, the movements in the TASI factor in the concept of religion as most of the population is Islam- meaning that they worship on a Friday.
According to Farooq, Bouaddi, and Ahmed (2013 p.1727), the Saudi stock market has the lowest volatility on Sunday. Therefore, this market implies that the trading day tends to be shorter during this period leading to the seasonality experienced by the Saudi Stock Market. This seasonality is also demonstrated in the business productivity levels in the country- introducing the aspect of activity. Most people have their productivity at their lowest on Fridays as they tend to take breaks for worshipping, and the week tends to close at an absolute low (Nishat & Mustafa 2002, p. 59). The market notices a reduction in the productivity levels between the weekends and the weekdays thereby showing how religion brings about the Weekend and the Sunday effects. The GARCH model, when used to analyze the records of Tadawul All-Shares Index (TASI) to measure for the different days-of-the-week effects for the stock exchange returns and volatility show that there are significant movements for returns and volatility. Ultimately, the weekend and Sunday effects are present in TASI due to the large swings during this period (Abdalla, 2012, 167). These seasonal effects demonstrate the fact that the community largely incorporates religion into their cultural and economic lives thus impacting the return and volatility rates in the country.
The seasonality of the stock market extends beyond religious holidays as many other factors come into play, which may form subjects for future research. For instance, stock prices may perform better at a specific time during the year as investors increase the market activity by injecting fresh capital. These seasonal effects may lead to high volatility with large price surges. Similarly, the bourse may be inactive on other months when investors pull out due to an economic slowdown. In the same vein, the seasonality of the stock market may be influenced by major news, such as the release of financial results by companies. To illustrate, the market may rally when good outcomes are expected and vice versa. These instances may form a basis for future research in analyzing the seasonality of the bourse.
The role of religion in the economic seasonality that is showed in the stock markets of Saudi cannot be underplayed because it is a community whose decisions, behaviors, and cultures are influenced by their religion. Given that religion instructs the country’s citizen on how to spend their money in specific cases, then religion tends to affect the forces of supply and demand within the economy. Religion’s effect on the supply and demand size subsequently impact on the productivity rates of companies, which greatly affects the economic performance of the Saudi economy. Since the seasonality effects in Saudi Arabia follow a given trend that respects the Islam religion, most researchers argue that religion plays a role in the returns and volatility noted when there are Muslim holy days. Nonetheless, the research and literature about the relationship between religion and the Saudi Stock Market are scarce, and extensive research needs to be conducted to theorize this relationship.

Investment Strategies During Ramadhan, Ashoura, and Hajj Festivals

The investment strategy that should be undertaken by any investor to a large extent depends on the performance of the financial market of each country. According to Agarwal (2015), the Saudi stock market is significantly affected by the Ramadan effect. Agarwal (2015) notes that in the Saudi’s Tadawul All-Share Index (TASI), there is always a decline in the index level and a decline in volumes just before the start of Ramadan and also in the initial two weeks of the Holy month. He particularly notes that this trend is due to the exit of retailers who participate in the stock market. Some investors liquidate holdings so that they can meet their family and personal expenses. Others expect the index prices will decline due to the depressed volumes; therefore, they realize their gains before this decline.
Agarwal (2015) notes that the volume of shares traded in TASI starts to decline a month before Ramadan, and volumes are at their lowest, which is 60% of the annual average, during this period. From the third week, the volumes start to increase gradually, which is mainly due to investors attempt to build positions as they anticipate that the TASI levels will rise because of the increased trading activities after the holidays. There is always an increase of about 38%
of the volume of stocks traded after Ramadan when compared to those traded during the Holy month (Agarwal, 2015).
There is also a similar pattern of the TASI levels caused by the Ramadan effect. On average, there is a decline of 0.6% in the index between the two weeks before Ramadan and the two weeks of the holy month (Agarwal, 2015). The TASI remains relatively flat in the subsequent two weeks and only starts to rise at an average of 2.9% in the fourth week (Agarwal, 2015). Agarwal (2015) notes that on the overall, food, retail, and hotel and tourism are positively affected by Ramadan. In particular, the food and agriculture sector gain 6% during Ramadan due to more consumption of staples. The retail sector also records a positive growth of about 4% due to more discretionary spending. Finally, the hotel and tourism sectors enjoys an increase of 4% because of the increased domestic demand and a high number of international tourists occupying hotels. On the contrary, Ramadan results in a decline in the banking, cement, and construction sectors. The cement sector is mainly affected by the decrease in construction activities in the country during Ramadan (Agarwal, 2015).
According to the Aljazira Capital (2014, p.3), Saudi Arabia experiences Ramadan effect on its financial market. During the Holy month of Ramadan, the returns are high, and volatility is low. In general, the trend in the financial market is caused by the majority of people spending more time in spiritual affairs and dedicating less time to business. Using 14 indices from 2000 to 2008, the Aljazira Capital (2014), established that there is a variance in sectoral performance for before, during, and after Ramadan. A few weeks before Ramadan, most people dedicate most of their time for the holy month. Consequently, more people exit the market because they plan on using their previously invested money during Ramadan. Due to their mass exit, there is usually a fall in the indices. The most affected indices are usually those in the building and construction sector. Overall, most of the sectoral indices are typically flat. After the Ramadan, there is always a rally in most indices, with the most active ones being those that are in the energy, banking, and petrochemical sectors (Aljazira Capital, 2014, p. 5).
According to Al-Ississ (2010), there are substantial negative returns during the day of Ashoura mainly due to investors’ engagement in religious activities and their psychological and emotional wellbeing. Since the Ashoura festival is associated with mourning, from a psychological perspective, investors are usually sad and less optimistic. Similarly, there are low returns and low market volatility during the Hajj festival due to low investor participation in the market. Shah et al. (2017, pp. 58) note that Muslims dedicate most of their time to prayer and religious rituals during Hajj hence slowing their investment activities. Additionally, Hajj presents various short-term opportunities, which result in cash outflows from the financial markets. The slowdown in the financial market leads to low returns and volatility during the Hajj festivals.
Other essential calendar effects that can affect an investor’s decision making in the TASI are the Day-of-the-Week effect and the Weekend effect. The day-of-the-week effect implies that the returns during certain days vary and some days outperform others. The Weekend effect is the tendency of stock markets to underperform during the first day of trading, which is usually on Monday. In Saudi Arabia, the market often rises on Sunday, which is the first trading day, and stock prices are higher than those of Thursday, which is the last trading day (Aljazira Capital, 2014, p. 2). Given the financial market movements in Saudi Arabia, most researchers recommend that an investor should make the following strategies:

  1. An investor should sell his/her holdings in the first trading day of the week (Sunday). He/she should avoid making buying on this day.
  2. An investor can make a short-term gain if he/she invests in the market just a few weeks before Ramadan and sells the stocks in the month after Ramadan.

Hypothesis

  1. H0: There is no significant change in the return of stocks in the TASI during the Ramadan, Ashoura, and Hajj festivals when compared to other periods of the year.

Ha: There is a significant change in the return of stocks in the TASI during the Ramadan, Ashoura, and Hajj festivals when compared to other periods of the year.

  1. H0: There is no significant difference in volatility in the TASI during Ramadan, Ashoura, and Hajj festivals periods when compared to other periods of the year.

Ha: There is significant difference in volatility in the TASI during Ramadan, Ashoura, and Hajj festivals when compared to other periods of the year.

  1. H0: There is a significant change in the volumes traded in the TASI during Ramadan, Ashoura, and Hajj festivals.

Ha: There is no significant change in the volumes traded in the TASI during Ramadan, Ashoura, and Hajj festivals.

Chapter 3: Data and Methodology

This paper uses the daily data of the Tadawul All-Share Index (TASI) from Saudi Arabia to establish whether Ramadhan, Hajj, and Ashoura festivals cause volatility, affects returns, and lead to changes in volumes traded in the country’s financial market. The data used in this analysis was from January 1998 to December 2017. I collected the data of the daily performance of TASI from tradingeconomics.com and investing.com, which I later compiled to establish the weekly performance. The research model has followed the Bialkowski et al. (2013) and also Chau et al. (2014) formats to test whether Ramadan, Ashoura, and Hajj festivals affect the returns, volumes traded, and conditional volatility of the TASI. It applies the GARCH-based specification, which is essential when there is a variation in the conditional mean and variance. This econometric model follows three main steps before the GARCH analysis. In the first step, all the daily data is used to estimate the average weekly performance from 1998 to 2018. Secondly, the data is arranged in a column and grouped into 52 weeks for each year. This arrangement of data is essential for the analysis of whether Ramadan, Hajj, and Ashoura affect the return and volatility of the TASI. Thirdly, the data is then analyzed using EViews SV (student version) software.
The Engel (1982) autoregressive conditional heteroskedastic (ARCH) model is used to forecast the variance of returns that vary systematically with time. In this model, the conditional variance, ht, depends on the lagged squared residuals of returns (Seyyed et al. (2005, p. 378). Bollerslev (1986) model extends the ARCH specification to a generalized ARCH (GARCH) by making the conditional variance ht a value of both the lagged values of ht and the lagged values of the squared residuals. According to GARCH, the best predictor of variance in the next period is a weighted average of the long-run average variance, the variance predictor of the examined period, and the most recent squared residuals that consider any new information, while still incorporating declining weights to past squared residuals (Seyyed et al., 2005, p. 379).
The effects of Ramadan, Ashoura, and Hajj on daily returns, volatility, and volume for the TASI is done using a GARCH model. Eq. (1) estimates the Ramadan, Ashoura, and Hajj effects which are modelled as dummy variables, Ramadan dummy (DRamadan), Ashoura dummy (DAshoura), Hajj dummy (DHajj). The auto regressive (AR) and the moving average (MA) effects are captured by the lagged values of the return variable and the lagged error values respectively. To reduce the auto correlated residuals, the AR and MA terms of order k and included in the equation (Seyyed et al., 2015).
Explanation using Ramadan dummy:
(Equation 1)
Where,
(DRamadan) = 1 for days in the year when there is Ramadan, and 0 for other periods
To estimate the variance equation (shown in equation 2) the time-varying volatility is modeled as a GARCH (p, q). In the conditional variance, the orders p and q are linear functions of past squared error and lagged variance. The Full Information Maximum Likelihood procedure is used to estimate equation 1 and 2 jointly and establish the effects of Ramada on return and volatility (Seyyed et al., 2015).
(Equation 2)
Where,
V0, i, j is a non-negative parameter to be estimated,
p>0, and q>= 0 define the order of the process
βt captures the Ramadan effect on returns volatility.
The estimated parameters should also be non-negative for them to have positive conditional variances. To ensure that the conditional variance is non-explosive and stationary, the restriction must be satisfied (Seyyed et al., 2005, p. 279)

Figure 1 shows the patterns of returns of the TASI from 1998 to 2017. The series shows that there are signs of ARCH effects since the amplitude of the returns varies with time.

Figure 1Returns of TASI From 1998 to 2017

From figure 2, since the probability is less than 0.05, serial correlation exists. Therefore, there is ARCH effect in the TASI.

Figure 2 Correlogram of Return Squared
The p-vale for the autocorrelation and partial autocorrelation is zero, which shows that there is no heteroscedasticity in the model.

Figure 3 Change in Volume
Figure 3 shows that there is an ARCH effect due to the varying amplitudes of the changes in volume from 1998 to 2017. The long ‘flat’ gap in the chart is because there was no available and consistent data on volume till 2008.

Figure 3 Change in Volume of TASI

Figure 4 below confirms the presence of an ARCH effect on volumes traded in the TASI since all the probabilities are less than 5 percent (0.05). The low probability confirms that serial correlation exists in the model.

Figure 4 Correlogram of Change in Volume Squared
 

Ramadan, Ashoura, Hajj Effects on Return

To estimate the Ramadan, Hajj, and Ashoura effects on the returns in the TASI, I used the expand function in EViews. The expand function played an essential role in enabling me to consider the time dummy in the model. Noteworthy, Ramadan, Hajj, and Ashoura occur during separate times of the year. Each of the key events, Ramadan, Ashoura, and Hajj had a row that had dummy values for when the holiday occurred and when it did not happen. The dummy value for when there was not Ramadan, Hajj, or Ashoura was 0, whereas it was 1 for the days when there was the respective holiday.
To test whether Ramadan, Ashoura, or Hajj effects have any impact on the rate of return for the TASI, I first used the estimate equation. In the model, the rate of return was the dependent variable, and dummy for Ashoura, Dummy for Hajj, Dummy for Ramadan, and volume were the independent variables. The level of significance for Ashoura, Hajj, and Ramadan were calculated automatically using EViews; therefore, the model simultaneously explained whether there was a Ramadan, Ashoura, or Hajj effects on returns.
Although I wanted to estimate the model from January 1998, I only used data from December 2011 since it was the only continuous data for volume.
Figure 5 Estimate Equation for Ramadan Ashoura and Hajj (Returns)
 
 
 
Figure 6 Solution for Ramadan, Ashoura, Hajj Returns
 
 
 

Volume

To estimate the Ramadan, Hajj, and Ashoura effects on the volume in the TASI, I used the expand function in EViews. The expand function played an essential role in enabling me to consider the time dummy in the model. Noteworthy, Ramadan, Hajj, and Ashoura occur during separate times of the year. Each of the key events, Ramadan, Ashoura, and Hajj had a row that contained dummy values for when the holiday occurred and when it did not happen. The dummy value for when there was Ramadan, Hajj, or Ashoura was 1, whereas it was 0 for the days when there was no holiday.
To test whether Ramadan, Ashoura, or Hajj effects have any impact on the volume in the TASI, I first used the estimate equation. In the model, change in volume was the dependent variable, and dummy for Ashoura, dummy for Hajj, dummy for Ramadan, and price were the independent variables. The level of significance for Ashoura, Hajj, and Ramadan were calculated automatically using EViews; therefore, the model simultaneously explained whether there was a Ramadan, Ashoura, or Hajj effects on volume.
Although I wanted to estimate the model from January 1998, I only used data from December 2011 since it was the only continuous data for volume.
Figure 7 Estimate Equation Ramada, Ashoura, Hajj (Volume)
 
 
Figure 8 Solution for Ramadan, Ashoura, Hajj (Volume)
 
 
Figure 9 Correlogram of Returns

Figure 10 Correlogram of Volume

Chapter 4: Findings

The findings of this research were done by examining for GARCH using Eviews SV (Student Version). Firstly, a test of returns and its volatility was done by analyzing the change in return in EViews SV. The data that was used in this level was from 1998-2018. Secondly, I analyzed whether there were significant changes in volume using EViews SV. Although I intended to use data from 1998-2018 in all my tests, I was only able to use data from 22 December 2011 to 31st January 2018 in the analysis since it was the only available and properly compiled information (consistent) that was consistent for all variables. I concluded that the data was sufficient for the analysis since it was consistent data for 7 years.

Returns of the TASI During Ramadan, Hajj, and Ashoura

The first objective of this research was to evaluate whether there is a significant decrease in returns on the TASI during Ramadan, Hajj, and Ashoura. Noteworthy, the null hypothesis of the model was: There is no significant decrease in returns in TASI during Ramadan, Hajj, and Ashoura when compared to other periods of the year. This hypothesis was assessed through the test of the coefficient of covariance of returns, which is shown in figure 6.

Solution of Estimate Equation for Ashoura, Ramadan, and Hajj

Ramadan
The p-value for Ramadan was 0.000, which is less than 5%; therefore, we reject the null hypothesis (Figure 6). Given that the null hypothesis is: There is no significant change in returns in TASI during Ramadan when compared to other periods of the year, I concluded that: There is a significant change in returns in TASI during Ramadan when compared to other periods of the year. During Ramadan, the TASI increased by 0.001966 holding other factors constant, which is shown by Ramadan co-efficient.
Ashoura
The p-value for Hajj was 0.0309, which more than 5%; therefore, I did not rejected the null hypothesis (Figure 6). Given that the null hypothesis is: There is no significant change in returns in TASI during Ashoura when compared to other periods of the year, I conclude that: There is a no significant change in returns in TASI during Ashoura when compared to other periods of the year. During Ashoura, the TASI decreases by 0.00678 holding other factors constant, which is shown by the Ashoura coefficient
Hajj
The p-value for Hajj was 0.1545, which is more than 5%; therefore, I did not reject the null hypothesis (Figure 6). I concluded that: There is no significant change in returns in TASI during Hajj when compared to other periods of the year. During Hajj, the TASI decreases by 0.00738 holding other factors constant, which is shown through the Hajj coefficient.
A study by Seyyed et al. (2005) showed similar results, in that, there is no significant decrease in returns during Ramadan. Similarly, Sonjaya and Wahyudi (2015, p. 57) establish that Ramadan effects do not significantly affect the annualized stock returns. Ali, Akhter, and Ashraf (2017) also note that Ashoura effects do not significantly affect the annualized stock returns.

The Volatility of the TASI During Ramadan, Hajj, and Ashoura

This research also aimed at establishing whether there is significant volatility of the TASI during Ramadan, Hajj, and Ashoura festivals. The null hypothesis for the model was: There is no significant volatility in the TASI during Ramadan, Ashoura, and Hajj festivals periods when compared to other periods of the year.
The establishment of whether the market is volatile is done through the tests of stationarity in the model. There is no significant difference in volatility in the TASI index during Ramadan, Ashoura, and Hajj festivals when compared to other periods of the year. Figures 9 and 10 show that there is ARCH effect in the model, the autocorrelation function (ACF) and partial autocorrelation function (PACF) confirm that the data is stationary. The Durbin-Watson statistic of returns is 1.739072 (Figure 6), and the Durbin-Watson statistic for volumes is 2.66 (Figure 8). These statistics further support that there is no autocorrelation in the model. Since the volatility process is non stationary, it therefore means that there is no volatility in the TASI index during Ramadan, Ashoura and Hajj festival periods compared to other periods of the year.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Correlogram of Return

Correlogram of Volume

Seyyed et al. (2005) opine that Saudi Arabia experiences low volatility during Ramadan. They also noted that there is a decline in trading activities in the country during this period. Chowdhury and Mostari (2015) also indicate that there is a decline in volatility during Ramadan in Pakistan. From a study conducted of majority Muslim countries, including Saudi Arabia, by Bialkowski et al. (2012) they note that there is a decline in index volatility in Ramadan. In my research, I established that there is no significant difference in volatility during Ramadan, Hajj, and Ashoura, and my conclusions agree with those of previous studies.

Changes in Volume During Ramadan, Hajj, and Ashoura

The third objective of this research was to test whether there are significant changes in volume during the Ramadan, Ashoura, and Hajj festivals. The null hypothesis for this model is: There are no significant changes in volume during Ramadan, Ashoura, and Hajj festivals when compared to other periods of the year.
Ramadan
The p-value for Ramadan was 0.000, which is less than 5%; therefore, I rejected the null hypothesis (Figure 8). Given that the null hypothesis is: There is a significant changes in volume during Ramadan when compared to other periods of the year, I concluded that: There is no significant change in volumes in TASI during Ramadan when compared to other periods of the year. During Ramadan, the volume in TASI increase by 0.047917 holding other factors constant, which is shown by the Ramadan coefficient.
Ashoura
The p-value for Ashoura was 0.1185, which more than 5%; therefore, I did not rejected the null hypothesis (Figure 8). I concluded that: There is a significant change in volume in TASI during Ashoura when compared to other periods of the year. The volume traded during Ashoura increased by 0.164718 holding other factors constant, which is shown by the Ashoura coefficient.
Hajj
The p-value for Hajj was 0.7411, which is more than 5%; therefore, I did not rejected the null hypothesis (Figure 8). I concluded that: There is a significant change in volmues in TASI during Hajj when compared to other periods of the year. The change in volume increased by 0.112036 holding other factors constant during Hajj, which is shown by the Hajj coefficient.
According to Abadir and Spierdijik (2005), Holy Days in Muslim majority countries affect the trading volumes of stock. Therefore, my findings on a significant change in volumes during Ramadan correlate with the researchers’ findings. Noteworthy, in Saudi Arabia, Ashoura is not highly commemorated, hence its minimal effects. Hajj, on the other hand, occurs for a shorter period when compared to Ramadan.
 
 
 
 
 
 
 
 
 
 
 
Volume: Ramadan, Hajj, Ashoura
Overall we establish the following:
Ramadan

  1. There is significant decrease in returns of the TASI during Ramadan when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI during Ramadan when compared to other periods of the year.
  3. There is a significant change in volumes of the TASI during Ramadan when compared to other periods of the year.

Ashoura

  1. There is no significant decrease in returns of the TASI during Ashoura when compared to other months.
  2. There is no significant difference in volatility in the TASI during Ashoura when compared to other periods of the year.
  3. There is no significant change in volumes of the TASI during Ashoura when compared to other periods of the year.

Hajj

  1. There is significant decrease in returns of the TASI during Hajj when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI index during Hajj when compared to other periods of the year.
  3. There are no significant changes in volumes of the TASI during Hajj when compared to other periods of the year.

Comparison of my Findings With Those of Similar Studies

A study by Akhter, Sandhu, and Burr (2015), on the stock market returns of six Muslim majority countries during Zul-Hijjah, an Islamic month, showed that the change in returns varies depending on the country. Akhter et al. (2015) used the GARCH (1, 1) model to examine the effects of Zul-Hijjah on the stock market returns of Pakistan, Malaysia, Indonesia, Turkey, Morocco, and Egypt. The data that was examined was from 1997-2013 for Pakistan, Malaysia, and Indonesia, while that of Turkey, Morocco, and Egypt was from 2006-2013. The Calendar Converter software was also used to change the Georgian dates to their respective Hijjari calendar dates. The researchers observed that Turkey, Morocco, and Egypt have a negative coefficient, which implies that the volatility of their stock markets decreases during the holy month. In Pakistan, Malaysia, and Indonesia, it was established that the volatility of stock market return is not affected by the Holy month. Importantly, the researchers identified that the negative Zul-Hijjah effect may be due to low trading market. They also noted that arbitrageurs enable the market to achieve efficiency, which reduces market volatility.
The main differences between my research and that of Akhter et al. (2015) were that their research only concentrated on the month of Zul-Hijjah, which has Hajj, and in my research, I considered Ramadan, Hajj, and Ashoura. Additionally, they converted the Georgian Calendar’s dates into their respective dates in the Hijiri Calendar. On a similar note, we both used the GARCH model in our research. Akhter et al. (2015) identified that on the overall, there is no significant change in returns during Hajj season.
Similarly, Shah and Ahmed (2014) established that the Ramadan Effect does not significantly affect the Karachi Stock exchange, which is the main equity market for Pakistan. Noteworthy, both Saudi Arabia and Pakistan are Muslim majority countries. Shah and Ahmed (2014) performed the research using the daily index of the KSE 100 index. The data was collected from Yahoo Finance and was from January 1, 2010, to December 31, 2012. The stock market was open for five business days for a period in which the data was examined. Notably, the researchers used the regression analysis technique to measure the changes in the stock market performance during Ramadan. Finally, the researchers used EViews software to calculate the Ramadan effects on the Karachi Stock Exchange. In conclusion, Shah and Ahmed (2014) dispute the common allegation that Muslims pay so much attention towards faith that they fail to participate in economic activities during periods of religious festivals. In support, Akhter et al. (2015) opine that arbitrageurs enable the market to achieve efficiency, which reduces market volatility. Bialkowski et al. (2012), also note that the foreign non-Muslim traders participate in Islamic financial markets can reduce the severity and even presence of volatility.
Although Shah and Ahmed (2014) research and mine were both on Muslim majority countries, theirs focused on Pakistan’s KSE 100 index while mine was on the Saudi Arabia TASI. Additionally, the researchers used regression analysis technique while I used the GARCH (1, 1), model. Finally, their data was only from January 2010 to December 2012, while my data was from 1998-2018. My findings on the TASI differed slightly from those of Shah, and Ahmed (2014) on the effects of Ramadan on the Karachi Stock exchange. I identified that in the TASI, there is a significant decrease in returns during Ramadan festival, but not significant in the Ashoura and Hajj festival. I also established that there are no significant differences in volatility in the TASI index during Ramadan, Ashoura, and Hajj when compared to other periods of the year. Finally, I observed that there is almost no significant change in volumes traded in the TASI during Ramadan. However, there were significant changes in volumes traded during Hajj and Ashoura.
Research was also conducted by Ali et al. (2017) to examine the effect of Muslim Holy Days on the stock returns of four Asian financial markets. The Holy Days that were of concern were Ashoura, Ramadan, Eid-ul-Fitr, Eid-ul-Adha, and Milad-un-Nabi, and the countries under study were Pakistan, Turkey, Bahrain, and Saudi Arabia. The data that was examined in this study was from 1 January 2001 to 31 December 2014. The researchers converted the Hijir dates for when the festivals occurred to their respective dates in the Gregorian calendar. Notably, the researchers determined the impact of Muslim Holy Days on stock indices return using a pooled fixed random effect panel regression for all the inspected stock markets. From the research, it was established that Ashoura and Eid Milad-un-Nabi (SAW) are not statistically significant. There was statistical significance for Ramadan at 5% level, which was associated with a 0.03 percent increase in daily stock return. It was also found out that Eid-ul-Fitr and Eid-ul-Adha are statistically significant at 1% level since they respectively result in a 0.55% and 0.34% daily stock return increase.
Interestingly, an assessment of all the Muslim Holy Days together but controlling Monday effects separately showed that all Muslim Holy Days are not statistically significant. When controlling Friday effects alone, the study showed that there was no statistical significance for Ashoura, Eid Milad-un-Nabi (SAW), and Ramadan. As for Eid-ul-Fitr and Eid-ul-Adha, they were both statistically significant at 1% level, which resulted in a 0.6 and 0.39 increase in daily stock returns respectively. Friday was also found to be statistically significant at 1% level, which resulted in a daily stock return of 0.13%. When controlling the January effect, the researchers established that the Holy Days of Ashoura, Eid Milad-un-Nabi (SAW), and Ramadan are not statistically significant. As for Eid-ul-Fitr and Eid-ul-Adha, they were both statistically significant at 1% and 5% respectively, and they resulted in an increase of 0.55% and 0.22% in daily stock returns. An evaluation of all Muslim Holy Days together, when controlling Monday, Friday, and January effects revealed that Ashoura, Eid Milad-un-Nabi (SAW), Ramadan, and Eid-ul-Adha are not statistically significant. Eid-ul-Fitr was the only Holy Day that was statistically significant at 1% level, which resulted in an increase of 0.48% on the daily stock returns. Additionally, the researchers established that one day lagged returns for all models are statistically significant at 5% level, with an increase in 0.05%, which showed that the daily returns were positively significant a day before Muslim Holy days. Further, Ali et al. (2017) determined that in Asian markets, Friday is highly statically significant at 1% level, and increased by 0.10% in its daily stock returns. Monday and January’s effects were found not to exist in Asian markets.
Overall, Ali et al. (2017), established that there is no impact on stock returns in the Holy Day of Ashoura in Asian markets with control and without control of the Gregorian anomalies. They also observed that Ramadan does not affect stock returns of the Asian market. In my research, I observed that there is a significant change in the return of stocks in the TASI during Ramadan, but there is no significant change in returns during Hajj and Ashoura. I also established that there is no significant difference in volatility of the TASI during Ramadan, Hajj, and Ashoura. The differences in our observations may be because of the varying methodology of our studies. Ali et al. (2017) researched four Muslim majority countries, namely Pakistan, Bahrain, Saudi Arabia, and Turkey; while my research was only Saudi Arabia. Additionally, whereas my study was from January 1998 to December 2017, Ali et al. (2017) research was from January 2001 to December 2014. Ali et al. (2017) study also considered all Muslim Holy Days, while my study was only interested in Ramadan, Ashoura, and Hajj. Finally, the researchers used panel data analysis technique, which was of fixed or random effect models, to test the established hypothesis, whereas I used the GARCH model.
In a study by Bialkowski et al. (2012), it was established that 11 out of 14 Muslim majority countries experience Ramadan effect, except Bahrain, Saudi Arabia, and Indonesia. The countries that were considered for this research were Bahrain, Egypt, Indonesia, Jordan, Kuwait, Malaysia, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, Turkey, and United Arab Emirates. To ascertain the accuracy of their results, the researchers used both the constant-mean-return model and the observed returns with regards to the predictions of the market model. The value of the weighted MSCI World Index of 23 industrialized and non-Muslim countries was used to establish an independent market portfolio. Finally, there was an assessment of the abnormal returns during Ramadan using the cumulative abnormal returns (CAR) model. From the assessment of the data, it was established that the cumulative abnormal returns in the considered period are strongly statistically significant despite the testing method used. In particular, the estimates of the CAR lied within the 2.48% and 3.11% range. Except for Turkey, 13 of the countries in the study had a drop in volatility during Ramadan. Finally, the researchers noted that the average turnover is slightly higher in the stock markets for the countries in the study during Ramadan.
Largely, the results of Bialkowski et al. (2012) were similar to my findings. In my study, I established that there are significant change in the returns of the TASI during Ramadan, but there was no significant changes during Hajj and Ashoura. I also determined that there are no significant differences in volatility of the TASI during Ramadan, Ashoura, and Hajj. Finally, I established that there are significant change in volumes traded in the TASI during Ashoura and Hajj. However, there are no significant changes in volumes during Ramadan in the TASI. The differences in the finding of my study and that of Bialkowski et al. (2012) can be attributed to the variations in our research models, countries under study, and the period when the research data was analyzed. In my study, I only considered Saudi Arabia, while in Bialkowski et al. (2012) research, they considered 14 Muslim-majority countries. Similarly, when I only used the GARCH model to perform my research whereas Bialkowski et al. (2012) used both the constant-mean-return model and the observed returns with regards to the predictions of the market model. They also assessed the abnormal returns during Ramadan using the cumulative abnormal returns (CAR) model. Finally, the introduction of foreign players into the Saudi Arabia financial market could have affected my study findings.
Research conducted by Al-Khazali, Bouri, and Zoubi (2017) from 2005 to 2015 established that the Ramadan mean returns are higher than non-Ramadan mean returns in 12 of the 15 Muslim majority countries in the study except Bahrain, Malaysia, and Morocco. The 15 regions tested were Dubai, Saudi Arabia, Jordan, Qatar, Turkey Bahrain, Malaysia, Morocco, Abu Dhabi, Bahrain, Dubai, Egypt, Indonesia, Oman, and Pakistan. Al-Khazli et al. (2017) also established that the non-Ramadan standard deviation of returns was significantly higher than those of Ramadan, which implies that returns in Ramadan are less risky than in the rest of the year. The only exception to this finding was Morocco, Qatar, and Turkey. During the Ramadan month, the stock market returns increased in all countries/ Islamic Markets that were studied except Indonesia, Malaysia, and Saudi Arabia. It was also established that there is a decrease in volatility in eleven countries, and it was significant in seven of them- Abu Dhabi, Bahrain, Dubai, Egypt, Indonesia, Oman, and Pakistan. On the contrast, there was a significant increase in volatility in Saudi Arabia during the Ramadan month. There was also an insignificant increase in volatility in Jordan, Qatar, and Malaysia. Overall, the researchers established that there is a moderate increase in stock returns and a reduction in volatility during Ramadan in most Muslim-majority countries that were examined. Further, these increases in returns are not significant except for Dubai, which implies that stock returns are not statistically significantly different in Ramadan with other months in the Islamic calendar.
The main similarity between Al-Khazli et al. (2017) research and mine was that we both used GARCH (1, 1) model for our studies. However, whereas my study was for only Saudi Arabia, the Al-Khazli et al. (2017) research was for 15 Muslim majority countries/ markets. The examined countries markets/ were Abu Dhabi, Bahrain, Dubai, Egypt, Indonesia, Jordan, Kuwait, Malaysia, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, and Turkey. Additionally, their study was from 2005 to 2015, while mine was from 1998 to 2018. These variations are what may have led to the differences in our observations. In my research, I established that there is significant change in the returns for Saudi Arabia financial market (TASI) during Ramadan when compared to other periods of the year. However, there is no significant change in returns during Hajj and Ashoura. I also observed that there are no significant differences in volatility in the TASI during Ramadan, Ashoura, and Hajj. Finally, I noted that there are significant changes in volumes traded in the TASI during Hajj, and Ashoura. However, I established that there were no significant changes in volumes traded in TASI during Ramadan.
A similar study was conducted by Sonjaya and Wahyudi (2016) to establish if there is Ramadan effect, and an efficient market, in 10 Muslim majority countries, which were Indonesia, Malaysia, Jordan, Morocco, Bahrain, Kuwait, Oman, Qatar, Saudi, and Tunisia. The researchers also wanted to identify the pattern of abnormal returns during Ramadan, the persistence of the Ramadan effect, the extent of the financial crisis on the annualized returns, and the robustness of the Ramadan effect. The study period was from 1989 to 2013.
This study established that Ramadan effect was persistent in only three countries Kuwait, Oman, and Tunisia. In particular, the researchers established that Ramadan effect is always positive in the three countries during Ramadan, and also in some sub-periods of the year. Noteworthy, the values of returns were found to be always larger than those of the rest of the year during this period. In the rest of the other countries, exclusive of Bahrain and Saudi Arabia, the researchers noted that they occasionally experience Ramadan effect. Additionally, the Ramadan effect was found to be always positive and larger than the annualized returns of the other months. On the contrary, Bahrain and Saudi Arabia were found not to experience Ramadan effect since their Ramadan returns were established as been always negative in all periods tested
Despite Ramadan effect occurring in most of the countries, the effect was found not to be persistent across time. However, their occurrence could not be declared as an anomaly since the financial and stock markets of the countries that were examined were found as not been efficient, even in weak form of efficiency. An analytical test of the data used by the researchers established that the Ramadan effect is significant during the full-period when using two models of normal return estimation, which were the market model and the constant-mean model in CAR (0.20). The researchers also established that it was significant only in the constant mean model CAR (0.1) at the range of 3.11-4.66%. Noteworthy, the insignificance of the Ramadan effect with the parametric t-test showed that the difference between the expected and actual returns during the Ramadan period did not give rise to meaningful abnormal returns that could be enjoyed by investors.
Using the test of persistence, the researchers identified several sub-period showed insignificant Ramadan effects. The period from 1989 to 1993 and that of 1994 to 1998 showed insignificant t-test results in the three models of normal return estimation. Further, in the other sub-periods, the t-test results had inconsistent significance results in the three models of normal return estimation. The CAR t-test showed that the Ramadan effect was present and significant during the full period. Also, the efficient market test of the full period disclosed that in general, the market had not yet reached an efficient level, not even in weak-form efficiency. In conclusion, the researchers asserted that cumulative abnormal returns can reasonably occur in markets that are not efficient in the place of a market anomaly.
            The researchers used the autocorrelation test on the index return in each country to examine if the markets were efficient. From their analysis, Sonjaya and Wahyudi (2016) noted that the markets were not efficient, even in the weak form, except for Saudi Arabia. However, since they did not have adequate data for Saudi Arabia, their tests results were inaccurate. Using the economic growth classification, all the countries were categorized as emerging markets frontiers. Since no emerging and frontier market is significant in the random walk test, the researchers concluded that the markets in the countries were not efficient even in their weak-forms, except for Saudi Arabia.
An examination of the annualized stock return during Ramadan, which is important in establishing if there is Ramadan effect, showed three groups of results. In the first group, which was composed of Tunisia, Qatar, Jordan, Kuwait, Oman, and Morocco, there were positive annualized returns that are greater than the annualized returns of other months. Accordingly, investors in these countries can make significant gains during Ramadan. In the second group, which was composed of only Malaysia, showed that there are positive annualized returns that are however smaller than the annualized returns of other months. As such, Malaysia does not experience Ramadan effect. Lastly, there was a third group, which was composed of Indonesia, Bahrain, and Saudi Arabia. These countries experienced negative Ramadan annualized returns.
In the researcher’s analysis of the pattern of abnormal returns during Ramadan showed three distinct groups. The first group was composed of countries that had on average positive abnormal returns during Ramadan. Accordingly, these countries experienced some Ramadan effect, and they were Tunisia, Kuwait, Jordan, Oman, Qatar, and Morocco. The second group had an abnormal return of 0.00% during Ramadan, which showed that they did not experience the Ramadan effect. The countries in this group were Malaysia and Indonesia. Based on these findings, these two countries do not experience Ramadan effect. The third group was of countries that experience negative abnormal returns during the Ramadan month. As such, these countries do not experience Ramadan effect. The countries that were identified by much these characteristics were Bahrain and Saudi Arabia.
Finally, the researchers tested the robustness of the Ramadan effect using the ARMA and GARCH models. From the analysis of the ARMA and GACRH models, it was established that the Ramadan effects do not significantly affect the return portfolio. Further, a regression analysis of the model showed that only the weekend effect is not independent of the Ramadan effect. On the contrary, the January and weekend effects are not independent or persistent from the Ramadan effect.
Unlike my research that only focused on the Saudi Arabia financial market, the TASI, Sonjaya, and Wahyudi (2016) examined 10 Muslim-majority countries. The researchers noted that the effects of Ramadan differed depending on the country. Regarding Saudi Arabia, the researchers noted that during Ramadan, its’ index had a significant decline in a decrease in return during this period. These results are similar to my observations, in which I noted that the returns of the returns in the TASI during Ramadan significantly change when compared to other periods of the year, but there are no significant changes during Hajj and Ashoura.
According to Sonjaya, and Wahyudi (2016), the insignificance of the Ramadan effect with the parametric t-test explained that the difference between the expected and actual returns during the Ramadan period did not give rise to meaningful abnormal returns that could be enjoyed by investors. In my research, I also observed that there is no significant difference in volatility in the TASI during Ramadan, Ashoura, and Hajj when compared to other periods of the year. It is important to note that both Sonjaya and Wahyudi (2016) and I used the GARCH model for the analysis. However, their data was from 1989 to 2013 and mine was from 1998 to 2017.
A study by Mitchell, Rafi, Severe, and Kappen (2014) on the Ramadan effect on conventional and Islamic financing established that Sharia-compliant markets are more affected by Ramadan than non-Sharia compliant ones. The research was conducted on three groups; Muslim majority countries, non-Muslim majority countries, and Pan Arab region. Additionally, the researchers identified the precise movements of the financial market during the research period by categorizing the Ramadan period into four distinct groups (pre-Ramadan, Phase 1, Phase 2, Phase 3, and Post-Ramadan). The data used in this study was from 1995 to 2014.
Mitchell et al. (2014) based their research on Muslim majority countries, which are Sharia-compliant and those that are non-Sharia compliant. The researchers also estimated the direction of the market by using the rank and sign test. This analysis was particularly important in enabling the researchers to identify whether the positive or negative daily movements in the financial market were responding to the various phases of Ramadan. They also conducted the robustness test to eliminate any bias in their analysis. Finally, the average abnormal returns, rank test, and sign test were conducted in the sample to ensure that there were no unobserved events during Ramadan.
The test by the researchers showed that there are negative average abnormal returns (AAR) in different parts of the Ramadan holiday. At the beginning of the Ramadan period, there are negative AAR, and in the later stages, the AAR is positive. In their analysis, the researchers considered the week immediately after Ramadan, the week ahead of the Ramadan, and the month-long Ramadan festival. In Muslim majority countries, it was established that Sharia-compliant stock indices experienced a downturn during the period just before Ramadan. Particularly, the fifth day before Ramadan had a strong negative rank t-stat (p<0.5) and in the significant test (p<0.01), while the type-1 error test (p<0.01). In the conventional stock indices, it was observed that there was a pre-Ramadan downturn three days to Ramadan. According to the researchers, the reason for the first reaction in Sharia-compliant stocks when compared with conventional stocks to Ramadan is that the former is more preferred by religious observers.
Further, the researchers established that in Muslim majority countries, the rebound in the stock indices occurred during the transition between the second and third phase of Ramadan. Both the Sharia-compliant and conventional stock indices had a positive trend during the transition period. Noteworthy, the Sharia-compliant stocks reacted three days earlier than the conventional stock indices. The conservative test of the Ramadan effect showed that the Ramadan effects affect Sharia-compliant stock indices more than the conventional market indices. To elaborate, there were negative results in the conventional market, for days immediately before the start of Ramadan, which was shown by the significant results for day -1 and day 3 both at the p<0.05 level for the rank t-stat and significance test.
Interestingly, the results of the Pan Arab region were similar to those of the Muslim majority countries, especially with regards to the Sharia-compliant markets. In the Pan Arab region, the Sharia-compliant indices had a sharp downturn in the days just around the start of Ramadan (-2 or +2 days). During this period, there were strong and significant negative trends, which indicated that people were preparing to celebrate Ramadan by selling their stocks so that they could have enough cash for the long observance. Finally, the researchers concluded that the reversal in the trend of the financial market in the last days of Ramadan could be attributable to the better social mood and expectations of individuals in the Ashra and Salvation period (final section of Ramadan).
In the non-Muslim majority countries, the trends did not follow the dominant trends that the researchers observed in the Muslim majority and Pan Arab regions. In the non-Sharia compliant stock indices, no association was observed at the start of Ramadan or during the transition to the third Ashra. Actually, on the second day after the end of Ramadan were significant results observed, which was impossible to associate this performance to Ramadan effects in these countries. Following this trend, Mitchell et al. (2014, p.120) asserted that these results might be due to the Eid al-Fitr or the increased adoption of Islamic banking and financing in non-Muslim majority countries. The researchers also established that Sharia-compliant stock indices that are listed in non-Muslim countries are moderately significant, and show a positive response. In this case, these stock indices had a rank t-stat p <0.05, and in the sign test and type-1 error test, the indices were significant at p <0.05 and p <0.01 respectively four days after the end of Ramadan. Accordingly, the Sharia-compliant stocks outperformed the conventional stocks during the period after Ramadan.
My research findings showed that there is a significant changes in returns of the stock in the TASI during Ramadan; however, there are no significant changes in returns during Hajj and Ashoura. Interestingly, we both concluded that investors should purchase stocks just before the start of Ramadan, when their prices are low and sell them a few days after Ramadan when their prices increase. Further, the researchers findings were realistic in that Muslim majority countries were more affected by Ramadan than the non-Muslim majority countries.
Research by Gavriilidis, Kallinterakis, and Tsalavoutas (2015) to establish whether there is a herding effect during Ramadan, showed that on the overall, herding is present during the Ramadan month, and whether it differs depending on the phase of the festival. The study was done using data from the equity markets of Bangladesh, Egypt, Indonesia, Malaysia, Turkey, Pakistan, and Morocco. Noteworthy, all the countries that were considered in this study are Muslim-majority. The data that was examined was from 1990 to 2014. Further, the researchers considered both active and dead/suspended stocks to mitigate against the effects of survivorship bias. Additionally, the researchers used daily time series data from S&P 500 index and the CBOE VIX index.
Gavriilidis et al. (2015) used a Newey-Wet consistent estimator to identify the impact of the Ramadan herding. Their investigations revealed that these countries experience the Ramadan effect, which is negative and statistically significant during certain days of the Ramadan month. In particular, the researchers identified that herding is present only within the Ramadan period in the domestic down market days and domestic down-volume days. They also noted that these periods occurred when there was a United States up-market days and were in the pre-crisis period. Interestingly, the researchers also noted that when herding occurs in both the Ramadan and non-Ramadan days, it is usually stronger in the former. In this period, it is stronger in the Ramadan days during domestic up market days, United States down-market days, and domestic up-volume days (Gavriilidis, 2015, p. 37). Finally, herding was only established as being stronger in the non-Ramadan days during the post-crisis period and the up-VIX days.
The researchers used a country-fixed panel approach to examine for time-in-variant heterogeneity across the countries being examined. The results of this test showed that herding tendencies increase during Ramadan. Further, the research showed that herding only occurs in Ramadan period when there are domestic down-market days, United States up-market days, domestic down-volume days, and during the pre-crisis period. Additionally, it was observed that when herding occurs in non-Ramadan and Ramadan days in the up-market days and up-volume days, it is usually stronger in the latter. The study also showed that herding was only stronger and present in the non-Ramadan days when there is are up-VIX days and during the post-crisis period. On the overall, it was established that there are stronger herding effects during Ramadan than those observed in the non-Ramadan days.
From a country-specific point, it was established that there are negative Ramadan effects for Egypt Indonesia, Bangladesh, Morocco, and Turkey. Interestingly, the herding effects were also observed as being significant outside the Ramadan days. Malaysia and Pakistan market were observed to be having significant herding effects outside the Ramadan days. After control for the impact of domestic returns in the relationship between herding and Ramadan for each country, Bangladesh, Indonesia, Morocco, and Turkey had significant herding. In Bangladesh, the herding effect occurred in the down-market days while in Indonesia, Morocco, and Turkey occurs in both the up and down-market days. Interestingly, there was no herding effect detected in Egypt during Ramadan. Except for Morocco, the rest of the markets showed that they experience herding in the rest of the days either during up-market, down-market or in both. In particular, Turkey and Indonesia experienced the herding effects in up-market days, and Bangladesh experienced them during down-market days. Finally, Malaysia, Egypt, and Pakistan experienced herding in both up-market and down-market days. Noteworthy, herding is stronger in Ramadan for countries that experienced herding within and outside of the Ramadan days.
Gavriilidis et al. (2014) also established that herding during the Ramadan period is not affected by market performance in Indonesia, Turkey, and Morocco. On the converse, herding was established only to occur in down-market days in Bangladesh. Overall, the researchers attributed the highly positive returns during Ramadan to the positive mood that many Muslims in Muslim majority countries. Additionally, although herding was observed to occur during the Ramadan period irrespective of the trading volumes of each country, it was stronger in the days of increased market volumes within Ramadan.
A test of the conditioning herding estimation of the daily movements using the S&P 500 index showed that there was herding almost all markets, except for Pakistan. The analysis showed that this case occurred in the up and down market days for Bangladesh, Morocco, and Turkey. It also occurred in the down market days for Egypt and Malaysia, while in Indonesia it happened in the up-market days. Finally, Bangladesh, Indonesia, Egypt, Malaysia, and Turkey showed herding effects in the non-Ramadan days. Countries that experienced herding within and outside the Ramadan days, it was established that herding was more intense during Ramadan. Markets that had herding during both up and down markets within Ramadan had a mixed relationship between herding and US market returns.
The conditioning of herding on the daily changes of the United States investors’ sentiments index (VIX) showed that significant herding exists in Ramadan during increasing and decreasing days for the VIX in Indonesia, Morocco, and Turkey, and also during increasing VIX days only for Egypt, Bangladesh, and Malaysia. Pakistan, on the other hand, showed significant herding only outside Ramadan days. Outside of Ramadan, herding is shown through increasing VIX-days in Bangladesh and Indonesia. In Turkey, it is characterized by decreasing VIX-days, whereas it is associated with increasing/decreasing VIC days in Egypt and Malaysia. Based on these findings, the researchers concluded that there were string herding during Ramadan days.
By analyzing the markets of Indonesia, Morocco, and Turkey, which have significant herding during up and down VIX days, Gavriilidis et al. (2014, p. 27) noted that herding in Ramadan is significant in the u-VIX days compared to the down-VIX ones. In this research, it was established that herding in Ramadan is related to the rising VIX-values. Noteworthy, an increase in the VIX is associated with an increase in fear among US investors (Gavriilidis, 2014, p. 22). The main similarities between Gavriilidis et al. (2014) research and mine are that we both established that Islamic holidays affect the performance of the financial markets of Muslim majority countries, including Saudi Arabia. However, whereas my study was focused on only Saudi Arabia, Gavriilidis et al. (2014) research evaluated 10 Muslim-Majority countries.
A study by Shah, Qureshi, and Aslam (2017), on the impact of Islamic calendar effects in the global Islamic equity indices established that Ramadan has no significant effect on the returns and volatility of indices. The researchers also identified that the Islamic month of Zil-Haj has a negative impact on the returns and volatility of Islamic Global Equity Indices. The data used in this research was from Dow Jones Islamic Market World Index, MSCI ACWI Islamic Index, and S&P Global BMI Shariah Index, which were sourced from Google Finance, MSCI, and official website of the S&P Dow Jones Indices. The examined data was from January 2011 to November 2015. The researchers used the log transformational formula to calculate the daily returns of the Islamic Global Equity Indices (GEIR). The researchers used the ordinary least square (OLS) technique to test the impact of Islamic months on returns of Islamic Global Equity Indices. Additionally, Shah et al. (2017) used the generalized autoregressive conditional heteroskedastic (GARCH) technique to examine the impact of Islamic months on the volatility of Islamic Global Equity Indices.
From the research, Shah et al. (2017) established that all the indices had a return of less than 0.02 percent. The indices also had an approximately similar standard deviation, and that they were slightly left-skewed and leptokurtic. At 1 percent level, the Jarque-Bera test confirmed that the series did not have a non-normal distribution. The statistic for the Augmented Dickey-Fuller Test (ADF) for the Islamic Global Equity Index Return Series were greater than the test critical values at the 1%, 5%, and 10% levels. Accordingly, all the indices were stationary at a level. Importantly, the researchers noted that these findings indicate that is a possibility of Islamic calendar effects in the indices.
The estimated results of the Dow Jones Islamic Market World Index (DJIMI) revealed that Ramadan does not significantly impact its returns. They also asserted that there is a decrease in returns of the DJIMI in the month of Zil-Haj, due to the month’s low beta value, which was (-0.001841). Finally, the Durbin-Watson statistic of DJIMI proved that there is no autocorrelation in the series. In the MSCI ACWI Islamic Market Index, the month of Zil-Haj was found to be the only significant regressor that could explain the variations of returns in the index. The coefficient of Zil-Haj showed that there is a significant negative impact at 10% level. The Durbin-Watson statistic for MSCI ACWI Islamic Market Index was also within the acceptable range. In the S&P Global BMI Shariah Index, it was established that the Zil-Haj effect was negative and significant at 10% level. Additionally, the index Durbin-Watson statistic was within the acceptable range.
Using the GARCH model, Shah et al. (2017) noted that the coefficient of Zil-Hajj is significant at 10% level for the DJIMI. The Durbin-Watson statistic was also found to be within the acceptable range, which showed that the series did not have any autocorrelation. The analytical findings of the GARCH (1, 1) model for MSCI ACWI Islamic Index showed that the coefficient of Ramadan is insignificant. The coefficient of Zil-Hajj was established as being significant at 10% level. Accordingly, the researchers concluded the Zil-Hajj has significant, which is negative, on the volatility of MSCI ACWI Islamic Index. It was established that the value of the Durbin-Watson statistic was within the acceptable range. In the S&P Global, BMI Shariah Index returns evaluation of the Islamic months on volatility; it was established that Zil-Haj has a negative impact on the volatility index. Further, the Durbin-Watson value was found to lie within an acceptable range.
From the OLS and GARCH (1, 1) model results, the researchers noted that Ramadan has no significant effect on the returns and volatility of the indices. Further, the research findings showed that the Islamic month of Zil-Hajj has a negative impact on the returns and volatility of Islamic Global Equity Indices at 10% significance level. Although Shah et al. (2017, p. 66) result findings suggest that Ramadan does not have any significant effect on the Islamic indices, they acknowledge that since the performance of a fixed regions does not determine these indices, the countering effects of the different locations eliminate the effects of the Ramadan. I also had similar observations with Shah et al. (2017) with regards to the volatility of the TASI. Despite the TASI being limited to Saudi Arabia, my research findings showed that Ramadan did not cause any significant changes in return or volatility of the index. These results are similar to those that Shah et al (2017) found for Dow Jones Islamic Market World Index, MSCI ACWI Islamic Index, and S&P Global BMI Shariah Index. However, I established that Ramadan caused significant changes on the volumes traded during Ramadan.
The main difference between Shah et al. (2017) study and mine are that whereas my study was focused on only the Saudi Arabia TASI, theirs examined three indices, which were Dow Jones Islamic Market World Index, MSCI ACWI Islamic Index, and S&P Global BMI Shariah Index. Further, the researchers’ study period was short, from January 2011 to November 2015, while mine was from January 1998 to December 2017. In my research, I established that there is a significant change in the stock returns in the TASI during Ramadan when compared with other periods of the year; however, there are no significant changes during Ashoura and Hajj. Contrary to my views, Shah et al. (2017) observed that there are no significant effects on the returns of the indices due to Ramadan.
Table Summarizing Previous Research Findings

Author Method Findings
Akhter, Sandhu, and Burr (2015) GARCH (1, 1) model Study on 6 Muslim-majority countries (Pakistan, Malaysia, Indonesia, Turkey, Morocco, and Egypt) to investigate effect of Zul-Hijjah on their stock markets.

Period: 1997-2013

Finding: No significant change in returns during Hajj season.

Shah and Ahmed (2014) Regression analysis technique Research on Ramadan effect on Pakistan KSE 100 Index.

Data Tested: Jan. 2010- Dec. 2012

No significant effect of Ramadan on KSE 100 index

Ali et al. (2017) Panel Data Analysis Technique Study on four Asian Muslim majority countries (Pakistan, Turkey, Bahrain, and Saudi Arabia) on the impact of Ashoura.

Data Tested: January 2001- December 2014

No impact of Ashoura on Asian markets, with control and without control.
Ramadan does not affect stock returns of Asian markets.

Bialkowski et al. (2012) Event study method using AR (abnormal returns) and Cumulative abnormal returns (CAR)

Constant-mean return model

Study on Ramadan effects on 14 Muslim-majority regions (Bahrain, Egypt, Indonesia, Jordan, Kuwait, Malaysia, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Tunisia, Turkey, and United Arab Emirates).

The study showed that CAR considered periods were strongly statistically significant for Ramadan despite the method used.

Al-Khazali, Bouri, and Zoubi (2017) GARCH (1,1) model Study on Ramadan effects

Period: 2005 to 2015

The tested regions were Dubai, Saudi Arabia, Jordan, Qatar, Turkey Bahrain, Malaysia, Morocco, Abu Dhabi, Bahrain, Dubai, Egypt, Indonesia, Oman, and Pakistan

Ramadan mean returns are higher than non-Ramadan mean returns in 12 of the 15 Muslim majority regions tested in the study except Bahrain, Malaysia, and Morocco.

During the Ramadan month, the stock market returns increased in all countries/ Islamic Markets that were studied except Indonesia, Malaysia, and Saudi Arabia.

There is a decrease in volatility in eleven countries, and it was significant in seven of them- Abu Dhabi, Bahrain, Dubai, Egypt, Indonesia, Oman, and Pakistan.

There was a significant increase in volatility in Saudi Arabia during the Ramadan month.

Sonjaya and Wahyudi (2016) Market model and the constant-mean model in CAR

ARMA and GARCH model

Period of Data: 1989 to 2013

Analysis of Ramadan effect on 10 Muslim-majority countries- Indonesia, Malaysia, Jordan, Morocco, Bahrain, Kuwait, Oman, Qatar, Saudi, and Tunisia.

Overall, most countries experienced Ramadan effect.

Bahrain and Saudi Arabia were found not to experience Ramadan effect since their Ramadan returns were established as been always negative in all tested periods.

Ramadan effects do not significantly affect the return portfolio.

Mitchell, Rafi, Severe, and Kappen (2014) Constant-mean model in CAR Study on Ramadan effects

Data was from 1995 to 2014.

Overall, The conservative test of the Ramadan effect showed that the Ramadan effects affect Sharia-compliant stock indices more than the conventional market indices.

Gavriilidis, Kallinterakis, and Tsalavoutas (2015) Newey-Wet consistent estimator To test the presence of herding effect during Ramadan.

Equities analyzed were from Bangladesh, Egypt, Indonesia, Malaysia, Turkey, Pakistan, and Morocco.

Period of the data: 1990-2014

Findings: Herding tendencies increase during Ramadan. Herding only occurs in Ramadan period when there are domestic down-market days.

Although herding was observed to occur during the Ramadan period irrespective of the trading volumes of each country, it was stronger in the days of increased market volumes within Ramadan.

Shah, Qureshi, and Aslam (2017) Log transformational formula, ordinary least square (OLS) technique, GARCH (1,1) Analysis of impact of Islamic calendar effects in the global Islamic equity indices.

Study period: January 2011- November 2015

Findings: Ramadan has no significant effect on the returns and volatility of indices.

Chapter 5: Recommendation and Conclusion

Recommendation

One of the primary reasons for this research was to provide advice to foreign non-Muslim investors on how they should manage their investments in the TASI. Importantly, the research findings on returns, volatility, and trade volumes provide appropriate information that can be used to guide international investors on ways of managing their investments. Noteworthy, this study has established the following:
Ramadan

  1. There is significant decrease in returns of the TASI during Ramadan when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI during Ramadan when compared to other periods of the year.
  3. There is no significant change in volumes of the TASI during Ramadan when compared to other periods of the year.

Ashoura

  1. There is no significant decrease in returns of the TASI during Ashoura when compared to other months.
  2. There is no significant difference in volatility in the TASI during Ashoura when compared to other periods of the year.
  3. There is a significant change in volumes of the TASI during Ashoura when compared to other periods of the year.

Hajj

  1. There is significant decrease in returns of the TASI during Hajj when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI index during Hajj when compared to other periods of the year.
  3. There are significant changes in volumes of the TASI during Hajj when compared to other periods of the year.

The behavior of the TASI during Ramadan, Ashoura, and Hajj is mainly due to the social and psychological impact that these festivals have on most Muslims in Saudi Arabia, which effectively affect their investments behavior. Bialkowski et al. (2012) opine that investors’ moods and emotions affect their judgments in decision making, preference for risks and returns, and their responses to uncertainties in the market. Religious practices and specifically Ramadan, Hajj, and Ashoura festivals influence investors’ psychology, in turn affecting the market’s behavior. Ramadan and Hajj are usually associated with increased optimism while Ashoura is associated with increased sadness. Additionally, most Muslims dedicate more time and resources in religious activities during these periods, which makes them exit the market a few weeks before the festivals start. According to the Aljazira Capital (2014), the trend in the financial market is caused by the majority of people spending more time in spiritual affairs and dedicating less time for business. Using 14 indices from 2000 to 2008, the Aljazira Capital (2014), established that there is a variance in sectoral performance for before, during, and after Ramadan.
My research findings show that there are significant changes in returns during Ramadan, but not significant changes during Hajj Ashoura. The market is however not significantly volatile during any of the holidays, Ramadan, Hajj, Ashoura. Regarding volume, there is a no significant change in volume during Ramadan, but there are significant changes during Hajj and Ashoura. The significant changes in returns during Ramadan indicates that a substantial number of people exit the market during this period. The lack of significant changes in returns during Hajj and Ashoura maybe due to the short period of the religious ceremony (Hajj is celebrated for 3 days, Ashoura is 1 day, and Ramadan lasts for 30 days). In Ashoura, there is no significant change in returns and no significant volatility levels. This trend may be partly explained by the fact that Saudi Arabia is a Majority Sunni country; therefore, Ashoura holiday not highly celebrated in the counrty. Accordingly, this festival does not significantly affect the market.
A foreign investor can make maximum gains in this market by purchasing stocks in the TASI when they are at their lowest, which is usually at the start of Ramadan when people exit the market. He/she should then sell them when they are at their highest when local investors are re-entering the market, which is a few days after the end of Ramadan. An investor should avoid making investments during Ashoura or Hajj. From my observations, there are no significant changes in volumes or volatility of the TASI in this period. Therefore, the investors will not have a chance of making any substantial gains since the market performance will mostly remain stagnant.
This observation is in agreement with that of Agarwal (2015). In particular, he notes that in the Tadawul All-Share Index (TASI), there is always a decline in volumes just before the start of Ramadan and also in the initial two weeks of the Holy month. Agrawal (2015) opines that this trend is brought by the exit of retailers who participate in the stock market to liquidate holdings so that they can meet their family and personal expenses. Additionally, some investors expect the index prices will decline due to the depressed volumes; therefore, they realize their gains before the index’s decline. Since the social and psychological effects of religion affect the investors in all major ceremonies, an investor should use this tactic for the Ramadan, Hajj, and Ashoura festivals.
It is worth considering how religious ceremonies affect investor’s decisions since this is a fundamental part of this study. It is expected that the Holy days of Ramadan, Ashoura, and Hajj can result in a decline in the number of investors, which can lead to an indirect impact on the returns of different holy days. However, the performance of the financial market largely depends on the risk assessment of the investors. In this case, if they all have common perception, their actions can affect the market returns.
Nonetheless, it is essential to note that the psychological perspective of investors may make the impact not to be unidirectional for different holy days. In months and holy days that are marked with optimism, such as Ramadan and Hajj, there can be an increase in returns while those that are characterized with sadness such as Ashoura can result to a decrease in returns. In this case, the faith effects on the investors would be through its influence on their emotional state and subsequently in their judgments and decisions. From the Appraisal Tendency Framework (ATF), it is considered that specific emotions influence a person’s cognitive processes, which affect his/her judgment and decision making (Cavanaugh, Bettman, Luce, & Payne, 2008).
Regarding Ashoura, which is dominated by sadness and negative emotions, it is likely that individuals may be less likely to engage in trade during this holy day because they may be pessimistic and unwilling to take risks. On the contrary, Ramadan and Hajj ceremony are associated with positive emotions. From a religious perspective, most individuals believe that they are blessed after experiencing the pilgrimage. The happiness elevates the investors’ optimism and makes them more willing to trade. In this regard, there is an expectation that there can be a change in volumes and returns during this period due to different investors’ sentiments. Besides the psychological factors affecting ‘religious’ investors, it is essential to consider the increased participation of foreign investors (who are corporates and non-Muslims) that can counter these changes, making the market less volatile and the returns more predictable, and also ensuring that there are no significant changes in volumes traded.
In summary, an international investor should purchase stocks in the TASI a few weeks or days to the start of the Ramadan, when most investors will be exiting the market. During this period, the price of the index will be low since most people will be selling. The investor should hold the TASI until after the end of the festivals. Selling his/her investment a few days after the end of the celebrations will result in him/her making sizeable gains since many will be entering the market, which will increase the prices of the TASI. A foreign investor should avoid making investments in Ashoura and Hajj since they do not result in significant changes in the returns, volatility, or volumes traded in the market. The relatively stagnant market during these two holidays will not cause any substantial gains in the value of their investments.

Conclusion

Overall, our study is based on the view that religious festivals affect investors’ psychology, which influences how they invest. This paper used weekly return and weekly volume data for the Saudi Arabia TASI from 1998 to 2018 to examine if it is affected by Ramadan, Hajj, and Ashoura festivals. A GARCH analysis was conducted using EViews SV (student version). This study established the following:
Ramadan

  1. There is significant decrease in returns of the TASI during Ramadan when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI during Ramadan when compared to other periods of the year.
  3. There is no significant change in volumes of the TASI during Ramadan when compared to other periods of the year.

Ashoura

  1. There is no significant decrease in returns of the TASI during Ashoura when compared to other months.
  2. There is no significant difference in volatility in the TASI during Ashoura when compared to other periods of the year.
  3. There is a significant change in volumes of the TASI during Ashoura when compared to other periods of the year.

Hajj

  1. There is significant decrease in returns of the TASI during Hajj when compared to other periods of the year.
  2. There is no significant difference in volatility in the TASI index during Hajj when compared to other periods of the year.
  3. There is a significant change in volumes of the TASI during Hajj when compared to other periods of the year.

The lack of significant changes in volatility may be partly explained by the participation of foreign investors in the TASI (Bialkowski et al., 2012). The foreign investors’ participation in TASI can be viewed from the Tadawul website (Tadawul, 2018). Since the foreign investors are institutional ‘individuals,’ they are not directly affected by religious festivals; therefore, they do not reduce their trading activities due to religious commitments. Additionally, the Saudi Arabia financial market is mature, and therefore not volatile.
Our study findings can be beneficial for investors who are seeking fast profits in the Saudi Arabia financial market. In this case, they can the TASI just before the religious festivals, when most people are selling, and sell them immediately after they end, when most people are buying. A more passive approach can entail selling them after the end of each religious festival. Alternatively, they can always make purchases before the end of the religious festivals window. In all cases, the investor should consider the transaction costs when making his/her strategies. Noteworthy, the use of these strategies cannot guarantee any investor success since financial markets are extremely volatile and seasonal effects cannot fully explain most of these volatilities.

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