Ramadan Seasonality in Muslim-Majority Equity Markets

Summary

The document presents a calendar-based equity timing effect associated with Ramadan. It proposes holding an equally weighted basket of exchange-traded funds tracking countries with Muslim-majority populations during Ramadan and remaining in cash during the rest of the year. Ramadan dates must be determined from the lunar calendar, and the cited study examines index returns across predominantly Muslim countries.

The source research reports substantially higher and lower-volatility stock returns during Ramadan than during the rest of the year, while another cited study finds positive return effects and differing results for other religious periods. The proposed explanation is that the month may improve investor mood and optimism. These findings describe historical associations, not proof of a causal or persistent premium. Country selection, changing Ramadan dates, trading costs, and the limited evidence described in the document all matter when evaluating the strategy; its market-timing rule also leaves the portfolio in cash outside the designated month.

Key ideas

• The proposed rule holds an equally weighted basket of relevant country equity ETFs during Ramadan and cash otherwise.
• Ramadan dates shift each year because the Islamic calendar follows lunar cycles.
• The cited study reports higher and less volatile equity returns during Ramadan across its sampled Muslim-majority markets.
• The suggested mechanism is improved investor sentiment, but historical association does not establish causation or persistence.
• The strategy is a market-timing overlay and is not presented as a direct bear-market hedge.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.