SEASONLITY IN STOCK RETURNS AND VOLATILITY: THE RAMADAN EFFECT

Abstract

This thesis examines the moving calendar anomaly, mainly the Ramadan effect, in terms of return and volatility. The analysis is based on seven dominant MENA region countries: Saudi Arabia, Turkey, Egypt, Jordan, Oman and Morocco covering a period from 2000-2011. Indices’ returns are calculated using daily log return while volatility is calculated using GARCH model. Kruskal–Wallis one–way analysis and Mann–Whitney U tests were used to determine if there is any significant change in returns or volatility during the month of Ramadan. Few literatures had aimed the MENA region; some literature concluded that there are changes in returns and decrease in volatility during the month of Ramadan. Other literature observed no change in returns with a slight change in volatility. The results achieved in this thesis are mixed; Saudi Arabia, Oman, Egypt and Israel do not experience a Ramadan effect. In contrast to previous literature, Turkey has perceived higher returns in Pre-Ramadan continuing to the first half of Ramadan and higher volatility post-Ramadan. In Moroccan stock market, investors are advised to buy shares prior to the start of Ramadan and selling them at the end of the holy month or preferably immediately after Ramadan. Jordan has positive calendar effect during the month of Ramadan accompanied with high volatility as indicated by previous literature.